Joe Duran

Duran Duranblog

Joe Duran

Forget fines, regulators want public scoldings

Fines for bad actions are yesterday's news; today, sanctions come with acknowledgment of guilt and potential for personal liability and loss

Jun 12, 2014 @ 9:45 am

By Joe Duran

The world has changed in many ways, but the inflow of former brokers into adviser roles and the shift in perspective for our nation's regulators are two things you'd best not ignore. Fines for bad actions are yesterday's news; today, sanctions come with acknowledgment of guilt and potential for personal liability and loss.

String 'em up high

For most of our careers, regulators have coerced large financial settlements from institutions that behaved badly; however, there is clearly a shift in the directive for all of these oversight groups. From the Department of Justice to the Federal Deposit Insurance Corp. to the Securities and Exchange Commission, the top cops are not just correcting bad behavior but setting public examples of bad actors.

Recently, Credit Suisse AG had the pleasure of not just paying over $2 billion in fines for assisting U.S. citizens in avoiding taxes, but also had to acknowledge guilt in its role. In the past, the fine might have been just as large, but there would have been no public acknowledgment of guilt.

A little closer to home, SEC Chairman Mary Jo White gave a speech where she said, “If an enforcement program is to have a strong deterrent effect, it is critical that responsible individuals be charged.” She followed up that the SEC is looking for “ways to innovate in order to further strengthen our ability to charge individuals,” not just the companies that they work for. In an industry where reputation is the biggest asset, I hope this strikes fear in everyone's core. There will be public examples; you can count on it. The pendulum is in full swing and the “tax” of regulation will be higher in our industry, no matter how small you are. I am no attorney, but below I cover some things every adviser should be thinking about, in addition to the obvious items like suitability, being honest and doing all the right things for clients.

Understanding all of the rules — and ensuring your entire firm abides by them — has always been part of the job, but the risk and consequences are higher now than ever before. No matter how small your firm is, a reputational event can shut you down permanently. So what are some of the less obvious areas you should consider?

1. Awareness and disclosure. No. 1 with a bullet is ensuring you are aware of the current rules, are open and communicative about every aspect of your business, and make sure you have documented evidence (that clients are aware of) of what you will do for them, how much it will cost and that they are alert to any and all areas of potential conflict. The knowledge should extend to ensuring all of your employees and folks interacting with clients understand and respect all of the rules. When was the last time you tested the regulatory knowledge of your staff?

2. Risk assessment. The more you do for a client, the more likely you are to have areas of potential conflict and risk. Taking custody, building proprietary products et. al. is a regulatory red flag that will increase scrutiny and make you look more risky to the regulators (no more Madoff situations). Regulators today are going beyond regulatory compliance to ensure you are monitoring all aspects of client risk, from privacy of their information to technology redundancy to balance sheet and key personnel risk. The scope of regulatory protection is wider now than ever — be prepared with internal risk assessment and contingency plans for all major areas of your business. Have you done a risk assessment of your entire business?

3. Demonstrated self-policing. Fewer things display your focus on compliance as an asset than showing that you self-regulate to the highest standards. Showing that you self-audit, catch and correct mistakes, and document and confirm compliance is expensive, but also a good way to ensure you stay out of trouble. What was the last operational or regulatory mistake you captured, fixed and documented?

We work in a glorious industry. We have no machinery, no inventory and no real capital costs. We get to do very important work every day. However, the lines are blurring between securities brokers and fiduciaries (with more brokers than ever becoming “advisers”) and the regulators want to see bad actors held accountable and paying for their misdeeds. This means more folks with less knowledge of the rules are entering the advisory business and the new sheriffs are tougher than ever. Being on the right side of the law is not enough — you need to actively monitor and document that your firm operates to the highest standards. Your reputation and your business are counting on it.

Joe Duran is chief executive of United Capital and the bestselling author of “The Money Code: Improve Your Entire Financial Life Right Now.” Follow him @DuranMoney.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Mar 13



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print