I wanted to again share with you an article sent out in August about volatile markets that may be good to send to clients, see attached. I also wanted to provide a few reminders on topics that have come up over
the past few weeks for our advisors. Two of these items were previously discussed during the IPI Connect monthly webcasts in 2015. I wanted to share
the pdfs with you in case you did not download them during the webcasts. Please know that these three (3) items apply to both brokerage and advisory
The first pdf is titled: WHY IPI CANNOT ACCEPT CERTAIN DEPOSITS INTO CLIENT ACCOUNTS.
This issue mainly surrounds IRS rules. Deposits (cashier's checks, money orders, bank drafts, traveler's checks) with a face amount under $10,000 are
considered CASH with the IRS and neither our advisors nor the home office should accept or send these types of checks to our clearing
firm, custodians or product sponsors. Please return such deposits to the clients and ask them to send a personal check for deposits with amounts under
This is a topic we have hit on numerous times throughout the past two (2) years and one we are sure regulators are going to be all over on our next exam
(we expect FINRA to conduct its exam either 2Q or 3Q this year). Nick Olendorf and I worked with Smarsh to make it easier for our advisors to send
encrypted emails to clients. The second pdf: COMPLIANCE SLIDE - NEW SMARSH ENCRYPTION PROCESS 12-17-15 provides a step by step of how to use encryption when sending emails to clients. It is a matter of putting the word secure in brackets [secure] on
the subject line of your email when your email includes a client's personal identifiable information such as sending a client a statement or including
the client's account #, SS#, DOB, etc. in the email. Most email providers support encryption automatically and a few are listed at the bottom of the
pdf on page 2.
Most advisors have clients that are either family friends or you have extremely close relationships that rely on their advisors heavily to assist in making
their investment decisions. I want to provide you with a hypothetical to walk you through a potential issue that has recently been addressed with another
Joe has been your client for over 20 years. You had a lunch meeting with him on December 15 and discussed his accounts. You made recommendations to sell
some shares and to hold other investments in his brokerage and advisory accounts. Joe agreed to your recommendations. You watched the market and then
executed the sell orders for both the brokerage and advisory accounts the following week. When you initially completed Joe's advisory paperwork you
discussed whether the account should be discretionary or non-discretionary. Joe agreed for the advisory account to be discretionary.
1. Are brokerage accounts discretionary at IPI (hint -- IPI only allows brokerage accounts to be discretionary under very limited circumstances)?
2. If brokerage accounts are not discretionary when should the sell orders be placed?
3. Should you have called the client back to confirm that he still wanted to sell the shares in the brokerage account?
4. Was the advisory sell transactions appropriate?
1. Here is a portion of the Discretionary Account section of IPI's WSP.
Discretionary accounts are only permissible in a managed account program through a Registered Investment Adviser. For a discretionary account, an IAR is
granted written authority to enter orders on behalf of a customer without contacting the customer prior to each transaction. The key elements of discretionary
account requirements include:
- Discretionary accounts require specific written authorization from the customer.
- A registered principal must approve the account as discretionary prior to effecting discretionary transactions.
- Discretionary authority is NOT effective until the customer has provided authority in writing AND the account has been approved for discretion.
Discretionary authority is permitted only on a limited basis, and only in managed account programs, i.e., IARs may have authority to purchase
and sell securities only. Discretion is not allowed on option orders. Full authority, which also authorizes the withdrawal of money or securities,
is not permitted.
For brokerage accounts, this prohibition does not include temporary or limited discretion in the following examples:
- Price and time discretion for an order.
- Isolated or infrequent discretion (customer is unavailable for limited period of time). The customer must sign a trading authorization in advance,
an expiration date must be noted on the agreement and the limited discretion must be approved by Operations or Compliance.
- Transactions to satisfy margin requirements.
- RRs family or personal accounts in which he/she has written authority.
2 and 3. If the client made the comment to you during the lunch that he wanted to sell shares in his brokerage account, Joe was giving you time and price
discretion for the current/next trading session for the transaction discussed. Time and price discretion would have only been for the trading period
on the day of your conversation depending on the time of the conversation. For example, the client says he wants to sell his position in a stock at
a 11am meeting and does not provide you a price or time specifics, then you have until the end of trading for that day to sell the stock. If you speak
to the client after the market closes, then you have the following trading day to place the trade. Keeping copious notes of your meetings and client
direction will protect you if questions ever arise (Salesforce is a good source for your notes).
If Joe tells you to use your discretion of when to sell the stock in the brokerage account, then it is your responsibilty to explain that you do not have
discretionary authority in the account and will need to get his approval before placing the trade. You should call the client back to confirm approval
again if the trade was not placed when it was discussed. Additionally, if you do not place the trade when discussed and Joe complains that he told
you to sell it and you did not then this could be a potential issue of failing to following a client's direction.
4. Pages 2 and 3 of our Investment Advisory Services Agreement describe your duties when an advisory agreement is either discretionary or non-discretionary.
Please be careful that if the client has chosen to have a non-discretionary advisory agreement with you that you must first consult the client and
obtain his/her approval before you implement any transactions in the client's account. Non-discretionary advisory account works the same was as a brokerage
account, you must speak with the client before placing a trade. Joe's sell transactions in the advisory account with discretionary authority would
have been appropriate.
These three (3) items may be confusing, if you want to talk them through then please feel free to give me a call or shoot Julie Cox or I an email to discuss
further. Thanks, Renee