Correct it now or pay laterArticle added by Katherine Vessenes on January 5, 2009
Katherine Vessenes

Katherine Vessenes

Chanhassen, MN

Joined: August 21, 2010

My Company

Advisors are increasingly likely to violate compliance rules and regulations. This article highlights this reasons why this is the case.

For almost 20 years, I have helped professionals in the financial services industry deal with the legal and ethical issues of giving financial advice. To help identify the specific opinions and preferences of those in the industry, we surveyed 100 financial service professionals to gauge their thoughts, opinions and experiences on compliance. Needless to say, we received some very interesting information.

The most startling revelation was that nearly 20 percent of the respondents were aware of someone who had knowingly violated compliance rules and regulations. Imagine that. If 20 percent of the respondents are aware of someone who knowingly committed a violation, imagine how many violators exist who they don't know.

The very frank, detailed responses from the participants were even more staggering. One participant said that such violations happen every day. The participant said, "You can't work in the securities industry and not violate an NASD or SEC rule every single day: It can't be done."

This person was of the mindset that violations are unavoidable; yet once this mindset has been reached, something is definitely wrong.

These types of blunt responses are a direct reflection of the attitude toward compliance many in the industry currently share. Advisors lack the time and desire to complete training. One respondent revealed that their reps have assistants, managers and other reps take their exams for them -- another clear violation of the rules.

So, what is the cause of this breakdown? There are a number of reasons. In some firms, the compliance officers may be new, inexperienced or may just not get it. Another potential reason is training.

As an industry, we do a terrible job of training our representatives in compliance and ethics. For example, let's look at those dreadful computerized exams. First off, they're boring and very hard to read. Looking deeper into the problem, these exams don't focus on actual, everyday scenarios.

Worst of all, they're begging, I mean really begging, for people to cheat on them. So ultimately, we have a boring, difficult exam that's easy to cheat on. This is not good process to promote either learning or ethics.

In addition to the numerous problems in the training process, many advisors are forced to deal with office inefficiencies. Approximately 40 percent of the survey respondents had been told by compliance that they couldn't do something that they knew was legal. So, in an industry of tight rules and regulations, some firms are confusing our advisors by incorrectly telling them they can't do things that they actually can. Considering the previously discussed deficiencies in training, it's easy to see how one could be confused.

The industry is very discouraged over the current state of regulations because it eats into their profitability and time. Time is the most important resource of any organization; it's always working against you and there is never enough of it.

Consider that 13 percent of registered reps surveyed lose one entire day per week to compliance issues and paperwork. These reps are losing an entire day in a world where we never have enough time.

At least they're putting forth the effort; 30 percent of the responding reps spend less than an hour a week on compliance. So, we have reps either wasting too much time on the issue, or not spending enough time addressing compliance. Neither result is good for the advisor or the investor.

Many advisors realize the seriousness of the issue, since 45 percent of respondents are concerned about facing an arbitration complaint or lawsuit. The truth is that everyone should be concerned. Arbitration and lawsuits are not only financially costly, but very time-consuming. These issues must be addressed before we can take the proper precautions to protect ourselves. Compliance concerns aren't to be taken lightly -- correct the problem now or pay later.
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