DEFENDING YOUR PROFESSIONAL INTEGRITY
Stay current on recent changes in the regulatory environment
As I have discussed in previous blog posts, my team and I monitor FINRA’s monthly disciplinary action reports. Specifically, we look for advisors who were either fined or suspended for failure to disclose tax liens. There are usually four or five advisors who sign an AWC agreeing to the findings that he or she “willfully failed to timely amend Form U4”. The suspension and the fine are not the worst part. The part that damages advisors the most, is the “willful” component contained in all AWCs pertaining to tax liens.
By signing the AWC, most advisors are not aware that the “willful” component of the findings will create even a larger mess for their careers than being suspended or having your name on FINRA’s discipline reports. By including the “willful” language, FINRA pins a rule 2010 violation on the advisor. A rule 2010 violation leads to a statutorily disqualified status (“SD”). In addition, rule 2010 violations are a Tier 1 offence, other Tier 1 offences include money laundering, fraud, forgery, embezzlement, etc. and carry an annual fee of $1,500 as part of the reinstatement.
By getting statutorily disqualified, the advisor essentially loses control of his or her career due to several different factors. First, the Broker-Dealer (“BD”) must decide if they want to keep an advisor who is SD’d. Believe me, it is much cheaper to U5 the advisor than it is to go through the MC-400 process, which is the application used to reinstate the advisor’s license after an SD. If the BD decides to go the MC-400 route, part of the application must contain a heightened supervision plan. What that basically means is that someone, internally, will be observing or babysitting the advisor every second of every day during the heightened supervision period.
I have reviewed a number of heightened supervision plans over the years, some of which were accepted by FINRA, some of which were denied. In essence, the BD will be required to have someone on staff who can be the advisor’s supervisor while maintaining his or her usual job duties. An OSJ will not suffice. FINRA specifically addresses their viewpoint regarding the immediate supervisor and if he or she will have enough time to oversee the advisor.
The application is a lengthy 4 stage process. Stage one is Regulatory Review & Disclosure which typically takes one to three weeks. The second stage is Member Regulation review which usually takes one to four months. The third stage is NAC (National Adjudicatory Counsel) review which takes three to four months. Finally, the SEC reviews the application which can, again, takes several months.
Furthermore, at each stage FINRA can call the advisor to a hearing if deemed necessary. Typically, an advisor can expect to go to at least the Eligibility Proceedings hearing during the initial phase of the application; these hearings are held in Washington DC, and cost $2,500.
FINRA will also assign a special examiner who will periodically require the advisor produce documents pertaining to the supervision plan, pull credit reports, run public records searches, etc.
As you can see, the amount of time and resources the BD must dedicate to keep a
statutorily disqualified advisor on staff is quite significant.
The moral of the story is this – if you receive a confidential letter from FINRA asking you about your tax liens, call AdvisorLaw. Our team is well-versed in these matters. So do not wait until you are staring at a statutorily disqualified; which for some advisors means “Slow Death” of your career.
President, Managing Attorney
3400 Industrial Lane, Unit 10A
Broomfield, CO 80020
Main Ph: (303) 952-4025
Fax: (720) 452-0613
This blog is my ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.