To play by the rules, you have to know the rules. For many advisors, that means becoming familiar with such imposing documents as the FINRA Manual, a sprawling and still-growing amalgamation of legalese (posted online at finra.complinet.com) that at last count included close to 1,400 pages of rules from FINRA, the NASD and the NYSE. And that's excluding hundreds of additional pages containing recently approved rule changes and decades worth of regulatory notices. A light beach read it is not.
So while tighter regulation of financial and insurance markets may be a blessing for consumers, it also means advisors who do business in those markets must dedicate more time, energy and resources to regulatory compliance. It's not a responsibility that advisors necessarily savor. Indeed, among all the facets of an advisor's job description, compliance might just be one of the most thankless. Why fault an advisor who invests so much in compliance efforts for sometimes wondering, "What's in it for me? Can I turn my strong compliance record and high standards of market conduct into a positive force to build my business?"
"It's an interesting question," says Jim O'Shaughnessy, a managing partner at Sheridan Road Financial Services, an advisory firm in Northbrook, Ill., that serves corporate and individual clients. "Up to this point we haven't seen a lot of firms and advisors directly promoting themselves based on a good compliance record. But given what's happened with some financial services firms of late, and people generally being more skeptical because of that, I would be surprised if there's not more emphasis put on [compliance record]. I really do think people are going to do a lot more research and ask a lot more questions before they place their business with someone."
From a marketing perspective, having a spotless compliance record might not be a difference-maker worth trumpeting in a brochure or advertisement, but it can provide additional traction with clients and prospects in a range of more subtle and indirect ways, advisors say. "I think as a marketing tool, [the compliance record] doesn't make that much of difference, unless it's a competitive situation, when a client is evaluating two or three advisors. That's a situation where I would bring up the fact that I have a clean record," explains Jeff Leib, CFP, CLU, CSA, RFC, principal at ICON Insurance in Woodland Hills, Calif.
Besides keeping you in business, out of regulatory hot water, in clients' good graces and away from negative publicity, having a strong compliance record does pay dividends. Here are a few of the bottom-line benefits to staying clean:
It helps earn references and referrals. For a firm like Sheridan Road that relies heavily on referrals from clients and other professionals–attorneys, CPAs, etc.–a strong compliance record is crucial, explains O'Shaughnessy. "Almost all the business we take on comes through favorable references and referrals. We wouldn't have those opportunities if we had a spotty compliance record. People provide us with good referrals because they trust that we always place the client first and we are doing everything ethically."
