Advisors Could 'Skirt the Rules' Under FINRA Home Office Plan: PIABA

FINRA Developing Machine-Readable Rulebook

FINRA’s rule was published again on Nov. 4, and PIABA again submitted a comment on Nov. 22 asking the SEC to reject this proposal.

Hugh Berkson, PIABA president, stated in the letter that “the amendment is a fundamentally flawed idea and runs counter to FINRA’s stated objective of investor protection. While it is understood that FINRA is attempting to change with the increased use of virtual technology, it leaves considerable opportunity for advisors working from home to skirt the rules.”

Said Berkson: “There are some things that technology cannot detect, but would be found with little difficulty through an in-person audit.”

For example, Berkson continued, “when an auditor visits the advisor’s home office, the auditor can see their home, car, and other assets. Many firms’ compliance procedures ask supervisors to gauge whether the advisor is l[i]ving within their means (or at least, their legitimate commissions or compensation), and this cannot be done effectively remotely or through in-person visits taking place every three years.”

Moreover, Berkson said, “a remote inspection will not find evidence of files or other documents related to unapproved investments being recommended to customers (i.e., ‘selling away’). Our members have had cases where brokers sold unapproved investments with brochures and other offering documents left in plain sight of their office. Obviously, a remote inspection would not uncover such problems.”