Five Regulatory Concerns Keeping Compliance Busy

4. Disclosing Recruitment Compensation Practices

FINRA has a proposed rule pending with the SEC that would require firms to disclosure the financial incentives (recruiting “bonuses”) provided to financial advisors when they change firms. “I’m not a fan [of the proposed rule]," Tolley says. Commonwealth is an independent broker/dealer and advisors aren’t joining the firm for the money, he says. But he noted that the revised rule—which kicks in when advisors receive more than $100,000 (including signing bonuses and other payments)—is better, saying the $100,000 minimum is a good start.

Oroschakoff noted that while LPL is supportive, but reps are not. She added it may be hard to do the bookkeeping on the compensation.

1. Sheer Volume of Regulations

Michelle Oroschakoff, Chief Risk Officer at LPL Financial, calls the new regulations and their impact on firms a burden, adding it’s especially true for broker/dealers with a large client base. Robert A. Muh of Sutter Securities Inc. added that FINRA needs to find a better way to categorize and regulate small firms with 8, 10 or fewer people.

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3. Due Diligence and Hiring Advisors

Oroschakoff says the most important part of any hiring and due diligence on a firm’s registered reps comes down to one thing: KYR, “know your rep.” If there are issues that come to the firm’s attention, monitor it, supervise the advisors more closely.

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2. CARDS

“If it’s done right, it’s going to be terrific,” Oroschakoff says of FINRA’s proposed Comprehensive Automated Risk Data System (CARDS). But she noted that from her perspective, investors are concerned about privacy and data breaches that might occur with the collection of trading data from all member firms. The investing public is not as supportive as one might suspect.

“Let’s face it, there’s some pretty sophisticated firms out there being breached,” says Paul J. Tolley, chief compliance officer at Commonwealth Financial Network. He fears, as do many, with such a huge database out there, it could be used to manipulate markets if in the wrong hands.

Tolley says he is also concerned that will be so many false flags, now firms might get “nickeled and dimed" on these little inquiries.

5. Social Media

For most firms, advisors are tweeting and firms are allowing them on social media platforms including LinkedIn and Facebook. At LPL, advisors who want to be on social media pre-register, go through training and then the firm reviews static content in advance. Oroschakoff noted that advisors are not allowed to use chat features and are not allowed to accept recommendations. “It’s important for advisors to be where clients are,” she says, but noted that it’s important to train people. The more guidance from FINRA, the better, she adds.

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