Filed Under:Annuities, Suitability

5 critical compliance issues for 2014

According to John P. Huggard, CFP, CLU, too often, advisors take their eye off the ball in regards to compliance issues

Not that they're necessarily doing the wrong thing with malicious intent, but that they don't know all of the available compliance issues.

mental1. Mental Capacity of Clients

One of the major issues facing financial advisors today is selling financial products to older clients who may have reduced mental capacity that is not recognizable. Almost every advisor is aware of the Glenn Neasham case in which Mr. Neasham, a financial advisor, sold a variable annuity to an older client.

failure to supervise2. Failure to Supervise

Some financial advisors are placed in supervisory positions (OSJ, office supervisor). One of the major issues in nearly every FINRA case filed today against a registered representative is the issue of whether or not the employing broker-dealer, through its supervisors, properly supervised the financial advisor.

outside business activitities 3. Outside Business Activity

Anything that generates income or remuneration, however small, is considered an outside business activity. Problem areas include:

exotic investments4. Exotic Investments

One of the most common areas for disciplinary action by federal regulators such as FINRA involves financial advisors who sell exotic or nontraditional investments. Investments such as stocks, bonds, ETFs, mutual funds, and variable annuities are common investments sold by financial advisors.

document failure5. Failure to Document All Transactions

Nearly every securities attorney that does defense work will tell financial advisors that the most important thing they can do to protect themselves against claims from their clients is to document every aspect of any financial transaction they recommend to a client.

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Nichole Morford

Nichole Morford
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