Compliance Legal Rule Compliancy Conformity Concept

When I sat down to write this article, I could not settle on which issues to warn you about. While this article might be an entire year’s debrief, there are too many issues to warn you about to wait until year-end. My goal is to protect you from falling into these traps and to save your licence, livelihood and reputation.

Here is the list.

Love them and leave them. Are you thinking of leaving your dealer for another one? Be sure you understand what your obligations are to your previous firm so that you don’t commit a breach of your existing contract. What does your current contract say about who can solicit your clients and your staff?

I have represented clients in employment matters who didn’t review their agreement in advance of the departure and instead took a leap of faith. They had to retain me afterwards to deal with their employer, and that was stressful for them. It is better to inform yourselves before making the move. At the very least, pull your contract and read it. If it is unclear, do not rely on the company you are joining to advise you. If there is a breach, you are going to be on the hook.

Join them, don’t rely on them. If the company you are joining is asking you to do something that seems like it might be a breach of regulations, follow your instincts and don’t be soothed by their in-house lawyers or executives who tell you they have always done it this way. If the company’s coaxing leads to your breach, it is your breach and you will be held accountable and could be penalized. That the company told you to do it is not a defence. Regulators will see your breach in a vacuum even if you were heavily influenced by your own dealer.

You are the company you keep. Joint codes mean that if anyone on your code breaches a rule or a policy in your dealer’s manual, you will also be hauled in for questioning. The old maxim “you are the company you keep” should be adhered to so that you are careful about who you associate with.

Divorce is never easy. Separating from someone on a joint code with you can be like a divorce: messy, expensive and time consuming. So, in addition to being careful about who you join up with, have a contract. Like a prenuptial agreement, it can save you aggravation if it includes a clause that dictates what happens to the clients if anyone on the code opts out.

I know this is asking a lot since most advisors enter a joint code on a handshake, and spending money on lawyers to draft such an agreement can be expensive. But consider the cost and aggravation if things go wrong. I wish that dealers had a template agreement that could resolve such issues, but almost every agreement between advisors is different, so that would be hard to do. If your dealer does have such an agreement, be sure to give it to your lawyer to read so that at least you understand what you are getting into and how you could extricate yourself if the relationship sours.

Exude a culture of compliance. Be accurate and respectful when responding to compliance queries. When your firm asks you compliance questions, usually in a seemingly informal email, don’t answer informally but assume it will end up in the hands of a regulatory enforcement lawyer who is prosecuting you. Many advisors don’t think carefully before responding. If it turns out your answer is wrong, then the dealer may terminate you and/or the regulator may challenge you for misleading your dealer, which is an infraction.

Further, be polite, even if you want compliance to get off your back. From your response, the regulator will judge whether you respect and adhere to compliance.

Good ole days are gone. It used to be that regulators and compliance reviewed your notes only if there was a client complaint. Not anymore! Your notes will be reviewed in an audit because notes are now a legal requirement under client-focused reforms (CFRs).

If it is not in writing, it didn’t happen. Regulatory auditors hold you to the CFR requirements, so if there aren’t any notes, you will not be taken at your word. Your dealer needs to supervise and ensure that your notes are neither superficial nor repetitive (a cut-and-paste exercise). Regulators look for specific proof, and your dealer will need to be sure your notes will pass the test.

Don’t judge a book by its cover. When assessing a client’s investment knowledge, be sure to collect evidence to support the ranking: nil, limited, good, expert. Judges and regulators want to know if the client understood what they invested in and will ask you to prove that the client had the knowledge base to understand.

Be on high alert with seniors. If senior clients present in a way that is out of character, be sure you contact compliance to determine whether you should contact their trusted contact person.

Don’t get too close to seniors (or any clients). If senior (or any) clients tell you they don’t have anyone they can rely on, don’t become the person they rely on. Your relationship with all clients must be professional, and picking up groceries or doing other chores for senior clients can lead to confusion about roles. This can inadvertently result in compliance breaches.

These are quick snippets of topics that could consume much more time. For now, please consider each of these issues so that you protect your license, livelihood and reputation.