Survey Finds Investment Advisers Knowingly Sidestep Compliance Rules
Vestment Advisors Inc., a Shorewood, Minnesota-based consulting and training firm for the financial service industry, conducted a survey of 100 investment advisers and other financial services professionals. The survey found that “many financial advisers knowingly sidestep their firm’s compliance policies and sometimes show little regard for rules and regulations,” reported

  • 45% said they were concerned that an investor would file an arbitration complaint or lawsuit against them for violation of compliance rules.
  • 20 % of the surveyed professionals said they knew of someone who knowingly violated compliance rules and regulations.
  • 21 of the registered representatives surveyed said they spent less than one hour a week on compliance, while 13% said they lost one full day each week on dealing with compliance issues.

The blunt, matter-of-fact manner in which those surveyed confessed to violations is telling.  Consider the following examples, as reported the InvestmentNews article:

“I would not believe anyone that says they have never violated a compliance rule.”

“Of course, everyone violates it every day.  You can’t work in the securities industry and not violate an NASD or SEC rule every single day — it can’t be done.”

“Some reps at my firm don’t want to spend time taking our firm element training tests online.  They ask their assistants, managers or other reps to take the exams.”

The candid nature of the responses is telling.  “I think it definitely characterizes the feeling in the industry,” said Katherine Vessenes, president of Vestment Advisors.  The feeling of the industry is one of laxness and complacency.  There is a cynical inevitability in the comments.  Essentially, the industry says the compliance rules are going to be violated and there is nothing anyone can do about it.

The survey identified specific compliance rules often violated:

  1. Advisers signing account forms for clients.
  2. Not sending email to the compliance officer for review.
  3. Not processing checks the day they were received. 
  4. Advisers sending letters to clients without first passing them through compliance
  5. Unauthorized trading.
  6. Selling away clients’ loans.
  7. Forging client signatures on transfer paperwork.
  8. Skipping exams and courses on compliance and ethics

The violations are twofold: first, the broker violates the compliance rule; second the supervisor fails to notice the violation or fails to take action.  The party ultimately harmed is the investor.

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