Although many advisors are tempted to attend regulatory interviews without legal representation, this is a big mistake they would be wise to reconsider.
Let’s take the case of Sven (not his real name), an advisor who asked me recently to describe the process of a regulatory investigation as he was getting ready to go for an interview with the regulator. I advised Sven that he needed to retain a lawyer to prepare him for the interview — and to attend the interview with him.
Sven had the same three common excuses as many other advisors for not wanting to retain a lawyer:
1. “I didn’t do anything wrong, so I don’t need a lawyer”
- Rest assured that the regulator (this includes the Ombudsman for Banking Services and Investments and the Financial Planning Standards Council, even though they are not regulators per se) believes you did something wrong, which is why it seeks to interview you. Regulators don’t just call on registered advisors randomly to interview them. Regulators investigate matters and interview (read: “cross examine”) advisors when they believe there’s evidence an advisor did something wrong. The interview is the regulator’s opportunity to explore the evidence it has already collected to nail down how you may have broken the rules. If you broke a rule, you may not even be aware of it. Your lawyer will help you appreciate and understand the alleged breach before the interview and prepare you for the questions you will be asked.
- If you don’t hire a lawyer to understand your breach before you attend the interview, and simply assert you didn’t do anything wrong, that will be additional evidence of ignorance relating to your compliance obligations and cause the regulator to be even more concerned.
- The regulator usually explores beyond the issues that might be central to the investigation to test whether you’re otherwise respecting and adhering to your compliance obligations. You need to be aware of the areas that may not be obvious to you, but should be obvious to an experienced lawyer.
2. “If I attend with a lawyer, the regulator will assume that I am guilty”
- The letter you receive from the regulator invites you to attend with a lawyer because, a lawyer who represents the regulator is also in the room while the investigator questions you. (This is assuming the investigator is not a lawyer.) So, it’s only fair for you to also have a lawyer.
- Investigators usually prefer you attend with a lawyer as the advisor is better prepared and answers the questions more directly and succinctly.
- A lawyer will teach you how to answer questions directly when preparing you in advance. Advisors who are not prepared might think aloud as they consider each question and then provide a long-winded answer that doesn’t respond to the regulator’s question. Such answers might lead the regulator to explore areas unrelated to the initial concerns. Most advisors need training in listening well to the questions being asked, and being direct with their answers before attending a regulatory interview.
- If you truly haven’t done anything wrong, having a lawyer attend a regulatory interview with you will not reflect badly on you. For the reasons above, the regulators prefer to have a fair process in which you’re represented by counsel.
- If the regulator pursues you later and you intend to use the excuse that you didn’t have a lawyer at the interview to assert the process was unfair and the admissions in your interview ought to be disregarded, think again. Not only does the regulator send you a letter inviting you to attend with a lawyer, it confirms at the interview that you chose to attend unrepresented and, accordingly, any assertion of unfairness will not be appreciated by the hearing panel and will reflect badly on you.
3. “I don’t want to call my errors and omissions (E&O) insurer because my rates will go up and I don’t want to pay for a lawyer.”
- Your E&O insurance rates may not increase with a claim. You need to call your broker to find out.
- Lawyers are expensive, but if you want to keep your licence and preserve your reputation, hire a lawyer with experience in your industry. You will find this to be worthwhile given the alternative of attending alone, unprepared and getting tangled up in questions that open up cans of worms never intended to be opened.
- Lawyers practising in this industry have junior lawyers who charge a fraction of the partner’s rate. If the matter is not complicated, the junior lawyer can handle the matter under the partner’s supervision. The cost will be less prohibitive.
So, if you’re facing the prospect of a regulatory interview, do your research and hire a lawyer whose website profile refers specifically to the expertise you need. After all, you’re spending good money to preserve your licence, your livelihood and, most importantly, your reputation.
For more from Ellen Bessner on how to prepare for an interview with your compliance department, the regulator or counsel for a complaining client, click here.