This is the first in a three-part series on being prepared and cautious when faced with a potential compliance breach. This column explains why advisors who are interviewed by their dealers or regulators need advanced preparation. The second column, published on May 8, will be about how to prepare for such interviews — and if you need a lawyer. The third column, published on June 5, will be about the importance of thoughtful email exchanges pursuant to an investigation into a potential compliance breach.
Provincial securities commissions, self-regulatory organizations, dealers and advisors are under the microscope more than ever before, resulting in a correlating increase in investigations. Such investigations often include an "interview" or "meeting" between advisors and their dealers' compliance departments and/or their regulators.
Many advisors seek to retain me to represent them after they attended these meetings and interviews. At this point, they're worried that what they've said in these "meetings" may have made matters worse. They're right. If only they had prepared better.
Would you, as an advisor, write an exam or attend a job interview without preparation? Not if you want to pass the exam or get the job. So, why would you take less care when your job or licence is on the line? Maybe the advisor didn't appreciate the implications? Maybe the advisor just hoped the matter would disappear after the interview? Maybe the advisor was too stressed to think!
I've listened to tapes of interviews and read many transcripts in which the advisor attended interviews without preparation. They aren't pretty. Why? The advisor is guessing at the answers and, in many cases, doesn't even understand or listen to the questions. Without preparation, the advisor is usually more nervous, doesn't think before answering the questions and just rambles on. In some cases, the advisor didn't even know what the issues were; which documents he or she was being asked about; or able to think about the issues being explored in advance of the interview.
Here are a few tips for those who might be on the hot seat:
- Although your compliance department calls it a "discussion," "meeting" or "telephone call" be prepared that the answers can, and will be, used against you.
- Compliance officers and in-house legal staff are not an advisor's lawyer. They might assist the advisor by providing documents and other materials or help with a written response, but they must remain objective in their investigation. That's because they have to get to the bottom of whether there was an infraction. Their duty is to their employer, which is the dealer.
- Understand that nothing is protected by privilege between you and the compliance officer at your dealer, conducting the investigation. All information from the interviews with your dealer can, and may be, shared with the regulator. This includes all tapes of interviews as well as emails. (This subject will be the topic of my third column in this series.)
- If you are in the dark about the infraction at issue, you will really be at a loss for how to answer questions depending on whether it's about: outside business activities; pre-signed forms; a client complaint; or a suitability review. Only if you understand the infraction will you know how to prepare for the interview.
- The interview may, allegedly, be about someone else's infraction and you are being asked for your evidence. Don't be lulled into a false sense of comfort. Be prepared as if the meeting or interview were about you, as it might lead to allegations against you as well.
- Some regulators have told me they believe that the element of surprise gets to the truth better than allowing an advisor to prepare. I believe the opposite to be true. In more than 25 years of working with advisors, I have found that they can remember the facts more accurately the more they review their paperwork, notes, calendar entries, and other relevant materials. The issues examined often occurred months or years before the "interview."
- Don't guess. You will be tempted to answer every question, but I've seen many advisors guess; of course, they guess wrong. They're then stuck with the wrong answers, which are used against them. They're also accused of lying if their file materials are inconsistent with their answers, which is another unfair result. It's a huge mistake to guess. If the regulator or compliance officer is not sharing information necessary to enable you to refresh your memory, tell them you need to review your file materials. Insist on having the materials necessary to remember what happened.
- Always co-operate with compliance and regulators. Tell them you will attend and answer their questions, but insist on fairness, which is your ability to review your file before answering.
You are obliged to co-operate with both your dealer and your regulator. You are obliged to answer the questions to which you know the answers. Therefore, tell them you will attend and answer their questions, but insist on the right to prepare and review your files before answering. Never go in cold; always be prepared.