Q: I recently had a problem where a court-appointed guardian for an elderly client was giving me instructions for trades that I thought were inappropriate for the client. I raised it with my supervisor who ran it past Compliance and we were told there was nothing we could do and to follow the Guardian’s instructions. I still feel uncomfortable with some of these trades. Is there anything I can do?
A: Financial abuse of the elderly is becoming more of a problem as the population ages. Additionally, in some states, there have been problems with court-appointed guardians who are supposed to be looking out for the client’s best interests. I would hope that your chief compliance officer spoke with counsel and explored the possible options. If so, there’s not much else you can do from your end. You could, however, address it again with your supervisor and make sure you’ve documented your feelings. In some states it is mandatory to report suspected cases of financial abuse of vulnerable clients. You might ask your supervisor if you could speak with the firm’s attorney for your own protection. Recently, FINRA
From recommending wrong share classes to cherry-picking allocations, these are the pitfalls advisers should avoid.
Q: I have a friend in South America who wants to refer some clients to me. Can I pay him a finder’s fee?
A: Generally, a broker-dealer is prohibited from paying commissions (or so-called “transaction based compensation”) to someone who is not a registered representative. However, FINRA Rule 2040(c) permits a broker-dealer to pay transaction-based compensation in the form of a finder’s fee to a non-registered foreign person if the following conditions are met:
(1) The member has assured itself that the finder is not required to register in the U.S. as a broker-dealer nor is subject to a disqualification as defined in FINRA's By-Laws, and has further assured itself that the compensation arrangement does not violate applicable foreign law.
(2) The finder is a foreign national (not a U.S. citizen) or foreign entity domiciled abroad.
(3) The customers are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad transacting business in either foreign or U.S. securities.
(4) Clients receive a disclosure document explaining the compensation that’s being paid to finders.
(5) Clients provide written acknowledgment to the member of the existence of the compensation arrangement.
(6) Records reflecting payments to finders are maintained on the member's books, and actual agreements between the member and the finder are available for inspection by FINRA.
(7) The confirmation of each transaction indicates that a referral or finder’s fee is being paid pursuant to an agreement.
The question of whether someone is required to be registered here in the U.S. can be complicated and space does not permit a detailed discussion here. However, generally if the finder is not located in the U.S. and is not referring U.S. citizens, then in most cases he or she would qualify for the exemption from registration.
However, the specific circumstances of each case must be considered for certainty.
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Plus, why matching clients with brokers of their race, religion or ethnicity might not meet the legal threshold for affinity fraud.
July 1 -
The SEC found that auditing or testing would likely have revealed deficiencies in controls that allowed an employee access to client information at the wirehouse, says leading compliance expert Alan Foxman.
June 22 -
Careful steps need to be taken so FINRA won't consider it an outside business activity, says compliance expert Alan Foxman.
May 24
