By Wendy Lanton
It's that time of year when the compliance department hands out the annual compliance questionnaire. It comes with an overwhelming sense of anxiety to many advisors even if they have nothing to fear. Why is it so dreaded? Here are the top five reasons why it is so feared:
Fortunately or unfortunately, depending on what side of the table you sit, the questionnaire is important. So, lets see why so much importance is placed on this document?
The way an advisor answers these questions can make or break their career. One white lie and the advisor’s career can be destroyed. So what is the best approach for the advisor to effectively answer these questions?
The best way to address any doubts is to ask questions. Just like in grade school, there is no such thing as a stupid question. Another great way to address any doubts is to ask your compliance department for a copy of your full form U4. Documents you can retrieve on your own like the FINRA public disclosure website and the new CRD enhanced snapshot report may notcontain all your information.
So why is filling out this annual document so important? Failure to update a Form U4 can come with industry-mandated sanctions. For example, failure to comply with Rule Requirements for outside business activities can result in monetary sanctions from $2,500 to $50,000 and suspensions ranging from 30 days to an industry lifetime ban. U4 violations range from $2500 to $25000 and can lead to 5 to 30 day suspensions. That’s just the end result. FINRA inquiries that lead to the fine or suspensions are also time consuming for the advisor and the firm. Usually, they involve engaging and attorney(s) on behalf of the advisor to mitigate the fee and/or suspension.
Once an advisor has a blemished record it stays with their CRD registration forever. Some firms won’t hire an advisor with a tarnished record. Some states will also consider not registering an advisor based upon their record. So, a word of advice is do not dread the questionnaire but do your best to provide honest and thorough answers.
Wendy Lanton is Chief Compliance Officer at Melville, NY-based Lantern Investments.
Source URL:https://wealthmanagement.com/regulation-compliance/dreaded-annual-compliance-questionnaire