The market is ever-changing, and many financial advisors have experienced this change time after time. However, newer financial advisors may not have experience working through a bearish market. Some economists might be able to predict the market. I, however, cannot. But given my experience working with FINRA and being involved in countless investigations against broker-dealers and individual financial advisors (either as an enforcement lawyer for NASD, n/j/a FINRA or as a defense lawyer), I can say with some level of certainty that, as a result of market turbulence and down markets, we are going to see an increase in customer complaints against advisors, an increase in individual arbitration claims, as well as complaints to regulators. So, with this in mind, I might be able to shed some light on ways to help avoid regulatory and compliance problems.
1: Keep in touch with your clients:
It's understandable that giving bad news is not ideal for most people, but it is absolutely crucial for financial advisors to keep in touch with their client, even with bad news to bear. If your clients reach out to you via phone call or email, be sure to reach back out and inform them on any changes to their account. Failing to communicate can cause more issues than laying down some bad news. In fact, if you do not attempt to communicate with your clients, it may prompt them to complain to your firm or regulators.
2: Always act with appropriate authorization:
Don't use discretion in accounts and exercise trades without specific approval from the client. If you have not received discretionary authority in writing from the client, and had the account approved as discretionary by your firm, it would not be wise to make any trades in such accounts without specific client approval. Along these lines, be sure you get authorization from the appropriate person- the client or someone who has actual legal authority to trade on the account.
3: Do not cut corners when it comes to client signatures:
It is important that you complete all your paperwork properly to avoid any issues in the future. Take the time to get all the necessary signatures that you need from your clients. Failing to do this can result in consequences such as termination, negative U5 disclosures, client complaints and arbitrations, and enforcement actions.
In short, be thorough with your paperwork, don't make any moves on accounts without appropriate authorization, and communicate with your clients. As simple as all of these may seem to be, you will be surprised by the number of financial advisors that get in trouble failing to do all 3 of these. By keeping these points in mind, you can help avoid regulatory and compliance problems, and keep good relations with your clients.
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If you run into regulatory and compliance issues or want to know more about to deal with them, should they ever come up, request my FREE book, The Financial Advisor's Guide to Regulatory Investigations” or purchase it on Amazon.