Your Complicated Relationship With Your Compliance Department

No one ever provides feedback. Recently a reader reached out to our Advisorpedia editor concerning my recent article on Out of the Box Ideas for Speaking Engagements.(1) The point he made was advisors need Compliance approval before implementing any marketing strategies than are not already preapproved by their firm. He is right. This is a good moment to look deeper into the advisor’s relationship with their firm’s Compliance department.

Compliance comes in at least two flavors. You have the “neighborhood cop on the beat,” represented by the Compliance officer in your office and the “Secret Police” who live in the background at the headquarters level. The firm’s concerns are protecting their clients and also the firm itself. Advisors work in a competitive market. It is difficult to earn a dollar in profit after expenses and overhead are taken into account, but it’s very easy to lose many dollars in lawsuits.

When working with your local Compliance officer, it is a good idea to start with an open, friendly relationship. Like preventive medicine, problems tend to be easier to solve when they are identified early. Years ago, there was a saying that continues to be valid today: “Have a problem, get a partner.” I recall a time at my former firm (back in the days when physical securities still existed) someone came into the office with government bonds in physical form. The advisor sensed there was something wrong and met with their Compliance officer. They both reached the conclusion although the Federal government was not perfect and has made mistakes before, misspelling “United States of America” on Treasury bond certificates is not the sort of mistake that would slip out. A sting operation was setup and the perpetrators arrested.

If you have an innovative marketing idea, sit down and talk with your Compliance officer first. There is an old saying: “It is better to ask for forgiveness than seek permission.” This doesn’t work in the Compliance arena, but there are ways of addressing the situation and tipping the odds into your favor.

There is an old expression: “You cannot poison a rabbit.” Why not? Because they sniff any food very carefully before even considering if they would eat it! Compliance managers tend to behave the same way. Few are early adopters, because no one wants to be first. If you heard about a great marketing idea and you want to try it yourself, find that other advisor in the firm who has already done it and get details from them how they got it approved. Tell your Compliance officer about it. They will call their opposite number in that office, find out how it was done and decide if they will follow in their footsteps because someone else sought and gained approval first. In our local newspaper, the business section features a weekly column written by a financial advisor. Advisors also speak on radio and announce the day’s closing prices.

The “Secret Police” at your firm seek to get in front of problems before they happen. Most people would agree the New Years Eve celebrations in New York’s Times Square are a potential terrorist target. You have probably heard they weld the manhole covers shut before the big event. We are probably unaware of many other techniques they use.

Your firm’s “Secret Police” probably have tools you know about. Everyone has heard of “spell check” for reviewing WORD documents. Compliance departments have their version of Compliance check that can scan outgoing electronic messages for use of words that generate red flags. A good example is the word “Guarantee.” Your firm might have flagged accounts that are on a fee based platform, yet have no trading activity. Those clients might be better off paying commissions by the trade. I had once asked an advisor if I could see the rules concerning advisor activity on social media. They said: “Sure. I have a list of the rules right here.” The moment they tried to add the list as an e-mail attachment, their screen lit up because the document was labeled “Internal Use Only.” They most likely have technology that spots deviations from the normal trading patterns of individual clients, which might indicate the possible use of insider information.

Getting back to seminars are marketing ideas, you might wonder “What’s the big deal? Why is this important?” Your client sees you as an agent of the firm, speaking on behalf of the organization. The firm is trying to protect you and itself from creating a situation where you could unintentionally create liability for both you and the firm.

Like most Secret Police organizations, you want to stay off their radar. Your Compliance Officer, the “neighborhood cop walking the beat” can act as your intermediary and help keep you out of trouble.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.

Related: Advisors: How to Get Yourself Fired