compliance puzzle

Given that I provide legal advice to the investment industry, a big part of my job is to keep on top of and know all the big changes that the regulators announce on a timely basis. To do that, I read the web feeds from both of the industry’s self-regulatory organizations (SROs) — the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada — and the Ontario Securities Commission, as well as Investment Executive’s newsletters, every day.

However, for advisors to do this is practically impossible. My suggestion is to understand the underlying principles of the regulatory changes. In this industry, the values that underlie most rules and internal policies are to protect clients as they invest in the capital markets and to be transparent with clients, your dealer and the regulators.

Here are three steps you should take to keep on top of any regulatory changes:

  1. Remember that you have an obligation to read and follow your company’s internal policies. In fact, you sign a form each year confirming that you have read, understood and will adhere to the dealer’s policies. When reading these policies, pay most attention to — and try to remember — the ones that most impact you. Although you won’t remember all of them, if you read them every year, the chances are better that you will become progressively more familiar with the contents. That way, if something arises, you will know to check the particular, relevant, internal policy.
  2. As for the regulatory rules, try to sensitize yourself to the issues that could come up in your business. The actual regulations are hard to read, understand and digest. Instead, try to read articles or books* that are easier to digest to ensure you incorporate good practices into your business.
  3. If an issue arises in your business, don’t sweep it under the rug. Pull out your dealer’s policy manual and search your provincial regulator’s or SRO’s rules to ensure your next steps are compliant.

Of course, if a regulatory issue is still unclear, consult your branch manager or compliance manager before you take any steps that could make matters worse.

Here’s an example to consider: Mrs. X left you a voice mail message complaining about the risk in her portfolio and is stressed about the losses reported in her statement, which she just received in the mail. What do you do? Think first about the industry’s underlying principles — to protect Mrs. X and be transparent about it.

Should you call Mrs. X and try to talk her out of taking her complaint further? Should you resolve the issue quietly with her so that your dealer and regulator won’t find out? Would that be in compliance with her best interest and transparency? Or, would that put you directly into a conflict with Mrs. X and contravene internal policies and rules/regulations?

This is what you should do: If you had read your dealer’s internal policies over the years, you might remember that there are some that address the topic of client complaints specifically — even though you might not remember the actual relevant policy. Check your internal policy manual about client complaints; then, determine if the contents of the voice mail message constitute a client complaint, and what steps you should take next.

If the answers to these questions are unclear, then search “client complaint” along with your principal regulator’s name online. There will be definitions and obligations set out to help you understand your obligations on that regulator’s website.

If you are unsure, or if there’s a chance that there has been a “complaint,” you would need to either speak to your branch manager or compliance officer. If you have a recorded voice mail message, they can listen to it and tell you if the message constitutes a “complaint” under the internal policy or the rules and regulations.

If their advice is inconsistent with what you understand about your obligations, politely challenge them to ensure the steps they direct you to take are in compliance with internal policies as well as with the rules and regulations.

Confirm any steps the branch manager or compliance officer direct you to take in an email before you execute on them. Hopefully, they tell you that they will call Mrs. X back to manage the matter, or direct you with what to say to her specifically if they want you to call her back.

Although you can’t be expected to know every rule, reading the internal policies regularly and remembering the underlying values of the industry — to protect clients and be transparent with your dealer and regulator — are critical. Operate with these values consistently in mind and don’t hesitate to speak to your branch manager or compliance officer for direction.

Ellen Bessner is author of Advisor At Risk: A Roadmap to Protecting Your Business and the soon to be released, Communication Risk: How to Bridge the Client-Advisor Gap to Protect and Grow Your Business