When a compliance official calls your office, he or she is working to protect the interests of your clients, your firm and, ultimately, you.

“The advisor has their livelihood and their reputation at stake,” says Cheryl Hamilton, chief compliance officer with HUB Financial Inc. and HUB Capital Inc. in Woodbridge, Ont. “The branch managers and compliance officers [also] have personal liability in providing the first level of supervision.”

Hamilton encourages advisors to use their compliance department as a resource. If you are not proactive in asking questions about important regulatory issues, your compliance representative will likely be getting in touch with you.

Here are three common situations that will result in a call from your compliance department:

> You have not declared a new registration
When you receive a new license, you must inform your compliance department. This includes licenses that allow you to provide insurance or mortgages.

Compliance officials want to ensure there is no conflict of interest resulting from your multiple roles, says Hamilton. They need to know that when you are investing your client’s assets, you make decisions based on the interests of the client.

For example, you might be a registered mortgage agent who wants to talk to your client about investing in private mortgage funding. Are you approaching this conversation because you feel it is a better option for your client — or because there is a possibility of benefitting from higher fees?

> You have a job outside of your advisory practice
When you hold a securities license, all of your employment activities must be disclosed to your compliance department, Hamilton says.

Compliance officials want to know that, as in the previous example, your additional employment activities will not result in a conflict of interest that will harm your client or be detrimental to the financial services industry.

“[Advisors] have to seek our approval,” says Hamilton. “We have to weigh out the risk [and see that] they are properly set up to do those kinds of things.”

For example, you wouldn’t be able to hold your securities license and own a service that provides payday loans to consumers, Hamilton says.

“How could there be any objectivity with where a client’s money went?” Hamilton says.

Opening a separate business against your firm’s policy can result in serious repercussions — such as regulatory investigation or termination, according to Hamilton.

> You have entered into a profitable referral agreement
National Instrument 31-103 declares that your dealer must approve any referral arrangement that results in direct or indirect compensation. This includes a written agreement between your dealer and the professional to whom you are referring. Also, the dealer must record any fees before you have access to them.

Advisors who are interested in participating in this type of arrangement should check with compliance to see if their firm has a referral program in place. Through such a program, your compliance department will have researched third-party firms and ensured they are qualified to provide those additional services (such as accounting or mortgages) that your clients are asking about.

If you have a referral arrangement with a centre of influence that does not include any direct or indirect compensation, you are not obliged to clear it with your compliance department.

This is the second instalment in a two-part series on compliance issues.

For part one, see: The top reason compliance officers call advisors