Behave Yourself this Weekend: Your Firm Is Watching
A Memorial Day weekend tip to all advisors: Driving while tipsy may not only cause accidents, it could also cost you your job.
“You can never disclose enough,” said Norm Ashkenas, Fidelity Investments’ chief compliance officer for retail, wealth management and retirement businesses. “I almost wonder if after holiday weekends, you should look for drunk driving arrests.”
He was addressing Finra’s efforts to rein in firms that employ disproportionately high numbers of brokers with histories of complaints and misconduct, and its intensifying sanctions against individual brokers across the broker-dealer quality spectrum who fail to update U-4 regulatory disclosures.
The regulator earlier this month proposed heightened supervision and capital requirements for firms that cross “disclosure-event thresholds,” hoping to protect investors and ensure that they have money to pay arbitration awards.
Ashkenas and other firm and Finra officials discussed their growing sensitivity to behavioral and business issues, as well as rigorous pre-hiring checks they are making into behaviors and past events that may signal potential problems. Such scrutiny often creates tensions with hiring managers, they said.
Finra has long required individual brokers to update their U-4 regulatory disclosure firms with reports of liens, bankruptcies and financial judgements, and its bylaws allow expulsions or bars for those who make certain false statements to regulators. Firms are not allowed to hire brokers who have felony criminal convictions less than 10-years old, and for certain misdemeanor convictions in that time period.
But firms’ efforts to uncover non-investment-related events intensified after 2015 when Finra created Rule 3110(e) requiring ongoing monitoring and reviews. Headhunters have counseled that advisors be as forthright as possible about disclosing even embarrassing events, including even seemingly minor transgressions such as shoplifting or college-age drinking or drug arrests.
“The cold hard fact is that—for purposes of an advisor’s Form U4 disclosure obligations—these events stay with the individual like a bad haircut that never seems to grow out,” Howard Diamond, general counsel of headhunting firm Diamond Consultants wrote in a 2016 article advocating disclosure of “even the most mundane or long-forgotten youthful indiscretions” in the ever-growing “hypervigilant compliance environment.”