2011 Firm Element Continuing Education Do This… Don’t Do That… Tips For Good Business Practices

The Good, The Bad, and The Just Plain Ugly

Do This… Don’t Do That… Real examples of what you should and should not do in your day to day business activities. To help ensure your business is efficient, clean and well documented, this presentation will provide you real life examples of the do’s and don’ts in our industry.

Do This… Don’t Do That…  Accommodation Forgery  Required Client Documents  Mutual Fund Transactions  Correspondence and Advertising  Private Securities Transactions  Complaints and Other Legal Matters  Helpful Resources

Accommodation Forgery Don’t….  sign any client names to documents even if the client authorizes you to.  sign any client signature “just because they missed signing one form.”  sign a deceased client signature even if it may be in their best interest.  sign forms for clients because you forgot to get them signed at the time of the transactions (i.e. brokerage mutual fund trades). Do…  have the client sign all documents themselves!

Client Documents Don’t…  skip questions on the NAF.  mark ‘existing client’ on the NAF when the client is new to ProEquities.  forget all required supplemental forms (i.e. VAIAF, MFIAF, DIIAF, USL, B Share Worksheet, etc.)  have the client sign blank documents for future use. Do…  complete the NAF and all required documents in full.  obtain CIP documents when necessary (i.e Trust, Corporate Resolution, ID, etc.)  sign under the Registered Rep section.  have the clients sign all documents.  submit paperwork and obtain principal approval prior to placing transactions.

Client Documents Most Often Noted Mistakes  PO box with no legal address  Missing telephone number  No annual income and net worth  Leaving occupation, company name, address, etc. blank  Failure to disclose employee affiliation  Not marking an investment objective or risk tolerance  Listing an expired drivers license  Client did not sign the NAF  Rep did not sign the NAF Messy documents make for a messy business! …and yes, Compliance does cry over spilled milk.

VAIAF Client Document A Real Example  Purchase Amount of Proposed Transaction (Can be approximated) _$250,000___________  Existing Assets _$10,000 mutual funds_____________________  Liquid Net Worth$350,000___________________________________  Liquidity Needs $2,000_______________________________________  Purchase Amount as a % of Net Worth _35%_____________  Investment Time Horizon 10 years_________________________  Intended Use of the Proposed Variable Annuity: Retirement income after tax advantages growth for 10 years.___________ What’s wrong with this scenario? Answer: Actually 72% of net worth and rollover IRA already tax advantaged

MFIAF Client Document A Real Example  Purchase Amount $98,500  Mutual Fund(s) being purchased: American High Growth A Share Funds  Total Amount of Current and Planned Investments with this Fund Family: $98,500 SALES CHARGES The sales charges or “loads” (as presented in the prospectus) for the share class(es) that I am purchasing are (please check one share class and indicate load as percentage of Public Offering Price): □ A shares: _5.00____% Front-End Load (if purchasing at Net Asset Value, please indicate “NAV”) □ B shares: Back-End Load Schedule: ____%, ____%, ____%, ____%, ____%, ____% □ C shares: _____% Front-End Load plus _____% Back-End Load for ______ Years What’s wrong with this scenario? Answer: Near breakpoint transaction. Client should sign LOI for future addition to meet $100,000 BP.

USL Client Document A Real Example What’s wrong with this scenario? Answer: Stock symbol instead of name and no information on the mutual funds purchased.

Correspondence and Advertising Don’t….  correspond with clients using your personal or unregistered .  post your DBA on social media sites.  Tweet!  use your securities letterhead for non-securities business. Do….  register your address with AdvisorMail.  submit correspondence for principal review.  use approved business cards and letterhead.

Correspondence and Advertising Don’t….  send ad requests without allowing 3-5 business days for review.  hold a seminar without having the seminar materials approved.  ask for reimbursement of expenses for a seminar you didn’t get pre-approved by Compliance.  use misleading tag lines (i.e. Gold Mine Financial Group).  change acronyms. (i.e. SIPC = Safe Investments Produce Cash).  advertise mutual funds or variable annuities without a FINRA review letter.  use testimonials in IA advertising.

Correspondence and Advertising Do….  be fair and balanced.  include FINRA letters if available.  show risk and reward.  include appropriate disclosures.  include all seminar materials (invitation, slides, handouts, etc.)  run spell check and proof read. “I say, I say, what we have here is a failure to communicate.” Foghorn Leghorn

Correspondence and Advertising A Real Example Wouldn’t you want to invest with no risk? At this ‘FREE’ seminar I will teach you how to invest with no risk and gain the highest return. Free Dinner Provided What’s wrong with this scenario? Answer: Do we really have to explain it?

Advertising and Correspondence A Real ‘Good’ Example Save the Date! Save your Paper!! Joe Farmer & Associates are inviting you (and your friends) to our next Shredding Event Saturday, May 21 The shredding service will be located at our office parking garage at 1000 Jelly Belly Avenue, from 10:00 a.m. to 2:00 p.m. Bring any security sensitive files, tax related documents, etc. you want to destroy. Refreshments will be provided - please call our office with any questions: Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker- Dealer, member FINRA & SIPC. Farmer & Associates is independent of ProEquities, Inc.

Private Securities Transactions Don’t….  invest without obtaining prior Compliance approval.  solicit your clients.  provide advice on products not approved by ProEquities.  recommend secondary market products ProEquities currently offers to clients (i.e. non-traded REITs). Do….  request Compliance permission in writing for any PST.  retain all documents and approvals in your files.  obtain written Compliance permission before investing.

Complaints and Other Legal Matters Don’t….  offer a response or settlement directly with customers.  fail to disclose (or hide) your financial and/or legal problems from Compliance.  respond to any regulator without Compliance approval. Do….  immediately forward all complaints or legal matters (including insurance) to Compliance. (i.e. verbal or written)  notify Compliance immediately of any bankruptcy, tax lien, arrest, creditor compromise, lawsuit, etc.  immediately forward any regulatory requests to Compliance (including insurance). OR……

Helpful Resources  AdvisorPortal –  SEC -  FINRA -  SIPC –  NASAA -  IRS –

Questions? Compliance Department , option 3