The NASDR, perhaps taking a page from Joseph Conrads, Heart of Darkness, sent out a notice to members in May officially reminding them to keep a close eye on distant shores. Specifically, they are to monitor independent contractors who operate out of sight of branch managers and compliance officers.
Apparently fed up with the activities of some independents, NASD officials reminded firms that rules require members to supervise all associated persons,
regardless of their location, compensation arrangement, or registration status.
The notice also stated that firms must examine and implement full and regular inspections of their contractors operations. The NASDR didnt specify the exact nature of those inspections, but ordered them to be conducted on a regular schedule based on such factors as the nature and volume of business. Firms must have the schedule in place by Sept. 1.
The problem, according to Arizona Assistant Director of Securities Michael Burton, is that there is an increase in the number of independent contractors, and that distance from the home office can too often translate into loose ethics.
These brokers are a problem, and we are only now beginning to see just how much of problem, he says. Some of this has come about as a result of technology--its easier than ever to work on your own.
Regulators also point out that many independent contractors come from insurance or tax-preparation backgrounds and have meager training in securities products.
Although executives with some of the larger independent contractor firms admit there are problems on occasion, they steadfastly say that on a broker-by-broker basis, they are no worse than any sector of the industry.
There are, and always have been, some people capable of misdeeds in this business, and its not specific to any firm large or small, says an official at one California-based brokerage. But, as always, its a lot easier for regulators to go after small independents than larger firms.
The head of a New York-based financial planning firm agrees: I know were being targeted. All the talk of problems at independent firms is a bum rap, he says. Larger firms have relatively more compliance problems and sales pressure, and thats why some brokers come to us [from larger firms].
