How can we help?

Circle of Wealth - Broker-Dealer Compliance

Follow

Disclosure: This article is written solely by Mark Guthrie and is intended to be informational only. Mark is not an attorney, a compliance expert, or affiliated with any Broker-Dealer.

All of the following information should be considered Mark's personal insights and opinions. Nothing should be relied upon as professional nor expert advice in any way.

Please seek professional advice from a qualified attorney, Broker-Dealer, Investment Advisory Firm, and other agency or organization regarding your own situation.

______________________________________________________________________________

As a financial advisor, you are responsible for complying with multiple government and organization rules. Depending on your licenses, affiliations, and business practices you are responsible for understanding and following rules established by some or all the following:

  • Insurance Carriers
  • State Department of Insurance(s)
  • Broker-Dealer
  • Registered Investment Advisor Firm
  • FINRA
  • SEC
  • State Department of Corporations
  • Department of Labor

 

It can be a challenge to understand the requirements of being licensed in the area of securities or in the area of insurance. But, if you are licensed in both, the complexity seems to be exponential.

If you are a Licensed Registered Representative of a FINRA Member Broker-Dealer and a Licensed Life Insurance Agent, you have a requirement under your Broker-Dealer and FINRA (Rule 3270) to provide prior written notice that you wish to sell Fixed Insurance Products as an Outside Business Activity.

In doing so, your Broker-Dealer will review the activity and approve what you can do and the manner in which you can do it.

Once you provide written notice of you 'non-investment related' activity, your Broker-Dealer is obligated to consider whether the activity will:

1. interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers

or

2. be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered.

Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity.

and

A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of Rule 3280.

and

A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).

So, as a Registered Representative who desires to use the Circle of Wealth, where do you stand?

The first important point is that the Circle of Wealth is intended to be used only in your 'non-investment related' activity of selling Fixed Insurance Products. It is not intended to be used in any investment-related activity, including as a tool for financial planning.

The second point is that only 1 screen (The Personal Economic Model) in the Circle of Wealth has been reviewed by FINRA and has received a FINRA letter stating "The material submitted appears consistent with applicable standards". This was done to facilitate those who wish to use the Personal Economic Model image in pre-approved promotions, correspondence, and advertising.

Please see the full FINRA letter and the 20 Page Broker Dealer Review attached. 

Given this, it's important to discuss and understand the requirements of your Broker-Dealer relating to the details they wish to review regarding the manner in which you go about your Approved Outside Business Activity.

There are different opinions by compliance professionals as to what level of detail they would like to review in order to meet their obligation under FINRA Rule 3280. 

In over 25 years of the Circle of Wealth being used by thousands of Registered Representatives with hundreds of different Broker-Dealers, most Broker Dealer asks to be notified of systems being used, but few have asked for details.

The important point of understanding between you as a Registered Representative and your  Broker-Dealer is that anything used in discussing Fixed Insurance Products should not include any discussion of security investment details other than general account balances or other high-level account characteristics.

Have more questions? Submit a request

Comments

Powered by Zendesk