Reuters: Regulatory News: COMPLY-Sticking to the plan at client seminars

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COMPLY-Sticking to the plan at client seminars Jul 19th 2012, 16:55 By Suzanne Barlyn July 19 | Thu Jul 19, 2012 12:55pm EDT July 19 (Reuters) - A broker's spontaneity may help liven up boring client seminars, but watch out: too much showmanship can raise red flags and even lead to a visit by regulators. Seminars will always be popular tools for bolstering business ties and attracting new clients, but they involve more thought than simply showing off your knowledge about managing investment risk during shaky economic times. Starting next year, the planning may be about to get tougher. U.S. brokers will need to become more disciplined about managing invitations, preparing presentations and most importantly, sticking to the script during their public appearances. That's because attention to those details by compliance officers will likely intensify as brokerages prepare for a new rule from the Financial Industry Regulatory Authority that takes effect Feb. 4, 2013. The new rule redefines different types of communications with the public, which can include literature for retail and institutional investors. It also sets some new standards for other types of communications. Among the changes: brokers must have a "reasonable basis" for securities they recommend during so-called "public appearances," such as client seminars. FINRA's guidance does not spell out what "reasonable basis" means, so use common sense and avoid off-the-wall recommendations. The new rules also require brokers to disclose certain conflicts of interest during presentations, including extra fees they receive to promote certain securities. Since regulators are often keen to examine brokerages for compliance with newly minted rules, brokerages themselves will likely be inclined to pay more attention to each broker's process for developing and presenting the seminar. In fact, at least one brokerage hires consultants to observe their brokers during seminars, to ensure they are sticking to the topic and pre-approved materials. That means brokers will increasingly work alongside their firms' advertising and compliance departments before the seminar begins, said Jervis Hough, founder of Taurus Compliance Consulting LLC in Aventura, Florida. Smaller firms without the compliance manpower to plod through those materials can use an advertising review service available through FINRA to ensure they are compliant. Fees for the service vary, but could cost about $600 to review four 10-page documents for the seminar. "When in doubt, submit it," Hough said. OFF THE PATH Some brokerages try to ease the compliance burden for their advisers by offering a choice of several pre-approved seminar programs that include invitations, slideshow presentations and other details. Topics for educational seminars by Morgan Stanley Smith Barney advisers, for example, range from mutual funds to annuities, according to a spokeswoman. Challenges crop up, however, when none of the canned seminars are in synch with certain aspects of a broker's investment philosophy, said a Midwest-based Morgan Stanley broker. Covering other topics off the script, such as municipal bonds or single stocks, would mean developing a custom presentation in which all materials would be subject to review by the branch manager, he said. A second review by a company team could be required if the branch manager has concerns. That takes time, anywhere from a few days to weeks, and obviously, more work. For one Pennsylvania-based adviser affiliated with LPL Financial, the approval process for his investing and tax seminars takes between three days and a week. Still, he does not bother to set a date for the event until the compliance department signs off. BIG BROTHER WATCHING Here are the consequences of not being careful: FINRA examiners have been known to question brokerage compliance officers about how they check-up on whether advisers stick to seminar programs approved by the firm, say compliance professionals. Hiring "mystery consultants" to observe seminars is one way that firms can accomplish that goal. That possibility should be enough to encourage that brokers stick to the program. At least one brokerage is relying on that practice, according to a person familiar with the matter. It may also be in play at other firms, say compliance professionals. Even more serious: the possibility that a FINRA examiner may be watching. It is unusual and typically occurs during the course of an enforcement action, but it happens. Just ask Francois Cooke, a former FINRA examiner who is now a managing director at ACA Compliance Group in Boca Raton, Florida. He would sign in at seminars, using his real name and affiliation, to "just sit there" and observe. That does not mean the presentation must be a monotone reading of a detailed script, or that brokers cannot crack some jokes along the way. Sticking to the points covered in a pre-approved outline is typically compliant. But slipping in a slideshow presentation that shows different potential returns than the one your firm already approved could raise some eyebrows. There are, of course, other ways to forge client relationships without the compliance hassles of running a seminar. In fact, all the paperwork could make a wine tasting seem that much more appealing. Link this Share this Digg this Email Reprints

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