Few financial advisors today are engaged in only one business activity. The usual business lines for those in the securities industry are brokerage, advisory, and insurance. There also may be additional Outside Business Activities (OBAs). Each of these activities requires its own files and file cabinets. To help keep them separate, use color-coded file folders or labels. (For example: blue for brokerage, yellow for insurance, green for advisory, and red for OBA.)
Several months ago, an agent approached us with an ethical concern. Formerly affiliated with a large FMO, he claimed its advisors were telling seminar attendees to expect a 4 to 6% return on their annuity purchases, despite the typical 2% payout with competing products. What’s more, he alleged the FMO was benchmarking its annuity contracts’ performance to a 3% bond and S&P 500. However, instead of illustrating a current, lower-yielding annuity, it compared those investments against a higher yielding annuity from more than ten years ago, strengthening the case to buy its offerings.
Giving consumers the ability to check out securities brokers before doing business has been a long-time priority of the Financial Industry Regulatory Authority (FINRA) and its predecessor organization, the National Association of Securities Dealers (NASD). That goal received a boost recently when the Securities and Exchange Commission (SEC) approved FINRA’s revised BrokerCheck Link rule.
To the industry’s credit, firms terminated half of the offending advisors, the study reports. But 44 percent of those fired for misconduct wound up getting hired by another company that had an even higher rate of misconduct than their prior firm did. This suggests that some firms tolerate misconduct as a strategy to grow profits and that prior offenders in misconduct-tolerant firms are five times more likely to offend again.
Financial advisors have watched warily as the Department of Labor’s new Fiduciary Standard worked its way through the regulatory maze. They’ve either assumed industry lobbyists would water it down or Congress would block it permanently. When neither of those things happened, many advisors have remained mired in fear and paralysis. Many observers suggest this is not a formula for success in the new fiduciary marketplace.