Advisor at Risk

Ellen Bessner

Ellen Bessner is a well known, leading litigator with commercial litigation firm Babin Bessner Spry LLP. Her more than 20 years of experience includes defending investment and insurance industry participants, including dealers and individuals at all levels of courts.

Take the necessary time, collect the appropriate information, get help if needed and never guess when writing a response to an inquiry of a potential compliance breach

By Ellen Bessner |

This is the final column in a three-part series on being prepared and cautious when faced with a potential compliance breach. This column looks at the importance of providing thoughtful, written responses when being investigated for a compliance breach. The first column explained how it's crucial to never go into a meeting cold when being interviewed for any compliance infraction. The second column focused on how to prepare for an interview with your compliance department, the regulator or counsel for a complaining client.

When a registrant such as an advisor, agent, portfolio manager, supervisor, compliance officer or registered assistant receives an inquiry associated with any trade or activity, the immediate reaction can be to become stressed and agitated. So, take the necessary time to cool down and take stock of the situation before issuing a formal response.

Whatever you do, don't respond immediately, other than a polite acknowledgment of receipt. That's because mistakes can be made when operating under stress or agitation, such as responding in an aggressive, disrespectful manner or sending a response prematurely, without thinking it through carefully.

Why is your response, and the ones that follow, so important?

1.   You will be judged by your correspondence if a securities regulator or self-regulated organization reviews it. Regulators obtain such documents under many different scenarios, so don't assume that if it's not a regulator making the inquiry directly, the correspondence will remain internal to your dealer. Here are some of the possibilities:

a.   It could be the regulator reviews the correspondence pursuant to an audit many moons later.

b.   Your dealer may have to report the matter of inquiry to the regulator — and it may become the subject of a regulatory investigation.

c.   It may be that you seek to move your licence, and inquiries made may require divulging the subject matter being queried by your potential new dealer or the regulator before your licence is transferred.

d.   Unbeknownst to you, it could be that the regulator has asked your dealer to obtain this information from you and report it back to the regulator. Your dealer may not tell you if the regulator deems the investigation to be confidential.

2.   A judge or regulator might review your response if the matter results in your termination from your dealer and there is litigation and/or a regulatory proceeding that follows. You will be judged by the content and tone of your correspondence that predates the termination — especially if it was disrespectful to the person to whom you responded. Your response could reflect a failure to maintain a culture of compliance, adherence to your company policies and industry regulations. The answers you provided could turn out to be wrong or interpreted to be misleading.

So, what do you need to do to ensure you protect yourself when responding to an inquiry in any manner that might come back to haunt you?

To start, take a bit of time to breathe if you have the benefit of time (i.e. reasonable deadline or no deadline set for your response), or even if you don't. This will allow you to think more clearly and cool your temper before you respond.

Then, think about what information you need in order to provide an accurate response. Review the documents you need to refresh your memory, even if the matter under review was recent; take your time to ensure the paper trail, if any, follows the logic of your answer.

After you have prepared what you believe is the accurate answer, consider the matter chronologically and determine if the paper trail confirms the answer. Sometimes, the answer seems right until you think about the sequence of events. If it doesn't fit with the paper trail, then the answer might be wrong.

However, if there are parts of the answer you don't know, don't guess. Respond by indicating that you need more time to consider and don't know the answer off the top of your head. If you think hard enough and you don't have the pressure of answering on the spot, the answer may come to you. If it doesn't, still don't guess — even if you believe the guess to be the only logical response.

Why do I say never guess? That's because you will likely be drilled on every answer provided; and if you're guessing, that will be revealed, and may be interpreted, to be a lie or, at least, disingenuous. Furthermore, if you are guessing and subsequent questions are asked, you may be inclined to support the guess with more guesses. This is a slippery slope.

Finally, respond politely; if you find yourself unable to hold it together through such inquiries, get help. That help cannot be internal to your dealer. If you want such help to be confidential, it must be from a lawyer. It's up to you whether you choose to share that you are retaining a lawyer with your dealer. This person can simply help you piece the puzzle together and make sure that you're answering the questions with the most honest, responsive and accurate answers available — without guessing.