How to Drive Your Compliance Office Nuts

Driving your Compliance Officer nuts is the last thing you want to do.  You want to stay off their radar, not having them calling you onto the carpet.  This Is actually a list of eight ways to try staying out of trouble.

  1. Understand clients don’t always achieve their goals by following your recommendations.  You start to help clients by completing a financial plan.  You identify goals and make recommendations.  They agree.  You cannot say they will achieve their goals because you cannot see into the future.  You help them make progress towards their goals.
  2. You can help increase probabilities.  As above, there is no absolute guarantee your client will achieve their goals if they follow your recommendations.  Suppose they didn’t add money at the specified future dates?  There’s lots beyond your control.  The Monte Carlo analysis looks at probabilities along with some best and worst case scenarios.  The first time you run the analysis looking at their current holdings, there’s a certain probability of success.  You run it a second time, inserting your recommendations.  There’s a higher probability of success, but it’s not an absolute.
  3. “Guarantee” is compliance Kryptonite.  It might be the most dangerous word in their vocabulary.  It’s a word with no expiration date.  “Guarantee” can be used in certain qualified circumstances.  US Treasury bonds are guaranteed by the full faith and credit of the US government.”  Corporate bonds might be guaranteed by the issuer.  Something unexpected could always happen. Put another way, there are very few instances when you can say something will absolutely happen. Foreign countries have defaulted on debt before.  Your firm likely has a “Compliance spellcheck” program looking for certain words in e-mails.  Guarantee would be one of them.
  4. I Promise.  That’s right up there with guarantee.  You might think of yourself as an individual.  Your client sees you as an agent of the firm.  In their eyes, a promise from you is a promise by the firm. You might leave the industry, but the client feels the promise is still valid.
  5. All orders must be reduced to writing.  You cannot say: “I will watch this investment for you.”  If the stock suddenly declined, your client might feel you had an obligation to call them, warning them ahead of time.  If your client wants to protect themselves, that’s the rationale behind Stop and Limit orders.
  6. E-mails live forever.  You might have heard “What happens in Vegas stays in Vegas.”  This was later updated to “What happens in Vegas stays on Facebook forever.”  Think before you compose e-mails.
  7. Assume conversations are recorded.  This is meant to be considered an aspect of the client relationship. They might be recording it.   It should be especially relevant if something went wrong and there’s a disagreement.  Something you said in an unguarded moment might come back to haunt you.
  8. Have a problem, get a partner.  In the early stage of a problem’s life cycle, you might assume “It’s not a big deal” or “I can fix this.”  There are other times when something just doesn’t feel right.  It’s especially true with changes in a client’s behavior or attitude.  Sit down with you Compliance Officer and tell them the story.  You have a certain base of experience.  Theirs is much larger.

Although the title mentions “How to Drive Your Compliance Officer Nuts” the object is to keep yourself out of trouble.  You want to be known as a “safe set of hands.”

Related: When Does Investing Become Gambling?