Annual Compliance Meeting 2013 For Broker-Dealer Use Only.

Compliance How do you view your Compliance Department? Business Partner Adversary Pain in the Butt Both B and C For Broker-Dealer Use Only.

Book Quote The Social Media Handbook for Financial Advisors Published 7/31/2012 Page 3: “To this day, it’s still hard for me to not see a compliance officer as the enemy…” For Broker-Dealer Use Only.

Compliance Take a preventative approach with your business Use Compliance: Before purchasing marketing programs Before clients sign sale paperwork Before spending time writing newsletters For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Compliance 2001 For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Compliance 2013 For Broker-Dealer Use Only.

For Broker-Dealer Use Only. FINRA SEC Sigma Compliance States Regulatory Oversight For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Regulatory Oversight SEC New exam schedule: “We simply show up” Enforcement actions up 92% from 2009—2011 734 enforcement actions in 2012, $3b in penalties and disgorgement For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Regulatory Oversight FINRA $68,000,000 in fines 2012 Record $34,000,000 in restitution to customers 800 branch office examinations in 2012 5,100 internal examinations of broker/dealers and reps For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Regulatory Oversight For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Regulatory Oversight For Broker-Dealer Use Only.

For Broker-Dealer Use Only.

For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Regulatory Oversight States More States are active in on-site branch examinations Increased regulations regarding product sales (alternative investments) For Broker-Dealer Use Only.

Current FINRA Priorities For Broker-Dealer Use Only.

Current FINRA Priorities Variable Annuities (suitability/recommendations, buy-back programs, rep product knowledge) Structured Products Non-Traded REITs Regulation D Offerings For Broker-Dealer Use Only.

Current FINRA Priorities Cyber-Security and Data Integrity Antivirus software on all machines Password protection on all machines Wi-fi password on network Wire/distribution requests via email For Broker-Dealer Use Only.

Current FINRA Priorities Electronic Communication Prohibited for business use. Examples: – Facebook – Twitter – MySpace – YouTube – Chat Rooms – Interactive Blogs – Cell phone text messaging – Instant messaging – Outside email For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Customer Complaints For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Client Expectations Do your clients expect 12% + per year? Risk? Clients understand risk until they lose a penny. Clients can handle volatility as long as their accounts go up in value. For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Customer Complaints Immediately notify Compliance of any client complaint Never attempt to settle complaints on your own! For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Best Practices Take notes during client meetings Mail meeting notes to clients Get family members involved Fully explain both the pros and cons of the investment Have clients complete & initial paperwork For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Best Practices Talk to your clients! For Broker-Dealer Use Only.

Top 10 Ways To Get Fired From Sigma For Broker-Dealer Use Only.

For broker/dealer use only. B/D OPS 2006 10. Improper Signatures Assistants signing rep name Using signature stamps Signing clients’ names/initials For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 9. Mishandled Funds Reps May Not: Accept cash Endorse checks made payable to you/your business Hold customer checks longer than 1 business day For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 8. Selling Away Selling securities not approved by your broker/dealer. Beware of the “non-security” For broker/dealer use only. B/D OPS 2006

7. Settle Client Complaints Reps cannot settle disputes directly with clients Get compliance involved immediately NASD settled a matter involving a registered representative who paid two customers from personal funds to settle two verbal complaints. The representative failed to advise the firm of the complaints and settlements, and did not obtain the firm's approval of the settlements. NASD found that the representative violated Conduct Rule 2110, fined the representative $5,000, and suspended him in all capacities for three months. For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 6. Paying Referral Fees Reps cannot compensate non-registered persons for securities transactions A series 7 rep may not pay commissions to a series 6 rep for sales which required a series 7 NASD settled a matter involving a registered representative who paid a referral fee to an unregistered person. The representative had received a referral to a prospective customer from an accountant. The customer subsequently purchased a variable annuity from the representative, and the representative paid the accountant approximately half of his production credit as a referral fee. The representative also communicated electronically regarding his securities business with customers on his personal computer at his home without providing notice to his firm. NASD concluded that the representative's conduct violated NASD Rule 2110, censured the representative, and fined him $10,000. For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 5. Sales Violations All direct business sales must be approved by the home office prior to submitting to the product company Sending the home office copies of sales is not sufficient Sales which are ‘rejected’ by the broker/dealer may not be submitted to the product company For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 4. Failure to Report OBAs All outside business activities must be approved prior to engaging in them (Outside Business Activity form may be completed/submitted from our website) NASD settled a matter involving a registered representative who, while associated with an NASD member, also sold automobile financing contracts for compensation to members of the public. The representative failed to provide prompt written notice of this outside engagement to his member firm. NASD held that the representative's actions violated Conduct Rules 2110 and 3030 and barred the representative. For broker/dealer use only. B/D OPS 2006

For broker/dealer use only. B/D OPS 2006 3. Advertising Issues All advertisements, sales literature, and seminars must be approved prior to use Changes noted by compliance must be made Approvals are valid for one year For broker/dealer use only. B/D OPS 2006

2. Failure to Update Form U-4 U-4 must be immediately updated to reflect such items as: Change of address, phone, website, DBA, etc Felony Bankruptcy Liens Outside business activity NASD settled a matter involving a registered representative who failed to amend his Form U4 to disclose a charge of one count of larceny involving more than $250. The representative allowed two and one-half months to elapse before updating his Form U4 to disclose the felony charge. NASD concluded that the representative, by willfully failing to amend his Form U4, had violated Rule 2110 and IM-1000-1. NASD suspended the representative for three months in all capacities and fined him $5,000. Additionally, since the settlement included a finding that the representative willfully failed to disclose material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry. For broker/dealer use only. B/D OPS 2006

1. Take Shortcuts With Forms The following items are NOT allowable: Having clients sign blank forms Changing client forms (dates, dollar amounts, etc) For broker/dealer use only. B/D OPS 2006

For Broker-Dealer Use Only. Updating the Form U-4 Matthew Campbell (CRD #1879717, Registered Representative, Valparaiso, Nebraska) Barred from the industry Willfully failed to disclose material information on his Form U-4. For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Client Signatures Gary Martin (CRD #729331, Registered Representative, Indianapolis, Indiana) Barred from the industry Signed a customer’s name to a distribution form to facilitate a required minimum distribution (RMD) from an IRA account. For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Email Usage Dorian K. Saunders (CRD #4577155, Registered Representative, St. Louis, Missouri) Barred from the industry Sent public customers electronic mail from a personal email account, and instructed the customers not to send him emails at his member firm’s email address For Broker-Dealer Use Only.

Borrowing/Lending to Clients Samuel Mugavero, Jr. (CRD #2189945, Registered Representative, Bethlehem, PA) Barred from the industry Borrowed $10,000 from a non-family customer in contravention of the firm’s written procedures For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Using Discretion Roger C. Faubel (CRD #1233851, Registered Principal, Canfield, Ohio) Fined $5,000/Suspended for 10 days Purchased $25,000 worth of mutual funds in a customer’s account without the customer’s prior authorization For Broker-Dealer Use Only.

Disclosing Outside Business Dennis Brown (CRD #3022551, Registered Representative, Springfield, MA) Barred from the industry Engaged in outside business activities without providing written notice to his member firm. For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Falsifying Documents Angela Bounds (CRD #4460214, Registered Representative, Purvis, Mississippi) Fined $10,000/Suspended for 6 months Falsely represented that annuity purchases were not being funded with money from surrendered annuity contracts. For Broker-Dealer Use Only.

Outside Brokerage Accounts Jeff Ng (Registered Representative, Stamford, CT) Fined $25,000/Suspended for 2 years Failed to disclose all outside brokerage accounts to his broker/dealer For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Additional Items Maintain your blotters (paper, MasterTrack, Investigo) Keep all required Compliance files up-to-date Update Client Data Sheets at least every 2 years Ensure you are licensed in each state in which you transact business For Broker-Dealer Use Only.

For Broker-Dealer Use Only. Thank you Questions? For Broker-Dealer Use Only.