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FINRA Checking Up on Advisors' Lifestyles

FINRA Checking Up on Advisors' Lifestyles

If your paycheck is wildly out of whack with your lifestyle, both your firm’s compliance department and regulators may come knocking. 

In a discussion at FINRA’s annual conference Thursday about outside business activities, Mike Rufino, head of member regulation, and others noted the increase in the use of so-called “lifestyle checks.” If a broker’s production is low, yet he is living lavishly, it could be that the advisor is independently wealthy or has a successful spouse. Or it could be fraud. Either way, these situations are prompting regulators and firms to follow up and ask questions. 

“You have to be very aware of your reps’ financial circumstances in order to supervise and monitor effectively,” said Lisa Roth, president of Monahan & Roth LLC and principle of Keystone Capital. “If there’s a lifestyle change and nothing else in your records that is the source of that, then you’ve got questions that the rep needs to answer.”

Commonwealth’s head of compliance, Paul Tolley, said it’s about learning from history. Tolley noted that they had an advisor who withdrew funds from a brokerage account and filtered it into RIA business and then ended up stealing money. “He spent some time in jail,” Tolley said. But on the upside, the firm now has reports that identify that activity. 

“You put all those pieces, the withdrawal report and others and you combine that with any correlation with production, it comes together quicker than you might otherwise,” said Sharyn Handelsman, chief compliance officer at LPL Financial.

 
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