STEPS UP MONITORING IN NOD TO SEC: ROYAL TO REVAMP COMPLIANCE, JUST LIKE THE BIG BOYS

A New York broker-dealer subsidiary of SunAmerica Inc., responding to recommendations arising from a settlement with federal regulators, is adding an extra layer of managers to oversee the sales practices of its more than 3,500 reps.

Royal Alliance Associates Inc., one of four broker-dealer units owned by Los Angeles-based SunAmerica, is seeking five regional managers who will assist in training and recruiting reps as well as supervising compliance procedures. The reps, as well as the firm’s 300 or so branch managers, will report to the regional managers.

“As you get bigger you lose contact with the reps and communications breakdown,” says Hy Cohen, Royal’s president.

The management structure is very similar to those at Wall Street’s largest companies, which use regional managers to help the central office monitor the sales practices of their sprawling brokerage forces.

emulate wirehouses

Firms such as Royal Alliance, which cater to independent advisers, are feeling pressure from regulators to revamp their compliance oversight to have it look more like that of traditional brokerages, Mr. Cohen says.

Last year, Royal settled with the SEC a case stemming back to 1992 in which two brokers were accused of misleading sales practices. Royal paid a $50,000 fine and agreed to hire an outside consultant to review its compliance procedures. Mr. Cohen says Royal agrees with the recommendation of the consultant, Deloitte & Touche LLP of Wilton, Conn.

another opinion

Gary Krat, head of SunAmerica’s broker-dealer division, says that by yearend the company is likely to increase regional oversight at the firm’s other three subsidiaries – SunAmerica Securities of Phoenix, Financial Services Corp. of Atlanta, and Advantage Capital Corp. of Houston.

One former Royal Alliance adviser doesn’t buy the argument that regional managers will help head off oversight problems at Sun-America.

Frank Congemi, a New York rep now with Mutual Service Corp. of West Palm Beach, Fla., says SunAmerica is growing
too large to have much control over rogue reps. The Los Angeles-based company has nearly 10,000 independent reps.

Regional managers, according to Mr. Congemi, are more often brought in to attract new business, not police advisers.

“In the larger companies,” he says, “they (regional managers) throw too many dinner parties and are having too many contests to do anything about compliance.”