As many of you know, we had a recent visit from our FINRA auditors. This was a mini review to follow up on prior items in which FINRA felt like we needed
to tighten our procedures (Consolidated Account Statements, VAs, 529s, Active Accounts, etc.). We received some initial feedback from the auditors in two
(2) areas and expect a final report by the end of the year that may/may not include other items. I want to provide you with an overview of the two (2)
issues. I need your assistance in reviewing these items, returning the attached Attestation if you are licensed with IPI and IPI Wealth and letting me
know if you have any comments or questions. I am happy to discuss this with you and if necessary make any changes.
I know that most of you take great diligence and care with your clients. I am in no way saying that you are not already having these conversations with
clients, the issue is that we need to further educate clients with the attached insert and to document that these conversations are occurring, especially
with retirement accounts and meeting your fiduciary responsibilities with the DOL Rule. Here is a brief overview of the two (2) areas and how we are
1) Account opening- dually registered advisors (licensed with both IPI and IPI Wealth) should provide information and guidance to clients when brokerage/advisory
accounts are opened to ensure that the type of account (brokerage or advisory) is suitable for the client's expected trading volume and that the account
chosen is economically the best fit for the client. Advisors should provide the pros and cons of opening each type of account to a potential client
when discussing the types of accounts available. For example, if the client opens a brokerage account and expects to actively trade the account, potentially,
an advisory account may have been more reasonable to open for the client instead of possibly paying more in commissions with a brokerage account than
with advisory fees. Alternatively, a client placed in an advisory account in which no trading occurs and/or is in cash may benefit from opening a brokerage
account instead as it could potentially be a violation of the fiduciary rule if this occurs (this is called reverse churning and it is a breach of
your fiduciary duty to a client, if not properly documented). Proper documentation in your client notes (Salesforce, handwritten contemporaneous notes,
etc.) will assist in providing a full picture of your client interactions backing up the account activity for the DOL Rule.
With this feedback from FINRA, I am in the process of updating our WSP, see attached PDF language highlighted in yellow. We will be sending with your client's
RBC December 2017 statement an insert (Brokerage vs Advisory), which will also be made part of our New Account Packets starting in January 2018. If
you have an actively traded account, we will provide a copy of the insert if the client is sent an active account letter and if we call the client,
we will discuss the advantages and disadvantages of the types of accounts related to the client's commissions and advisory fees. Finally, I am going
to ask you for one more attestation this year (I wish I could have just added it to the Annual Compliance Questionnaire, but it will be part of it
for next year).
2)Leveraged/Inverse ETFs- we do hardly any of these types of ETFs, but FINRA felt like our procedures needed to be more robust, see attached language
highlighted in yellow that will be updated. We also included ETF training with QuestCE this year, so training was covered and I sent out the attached
ETF disclosure in 2016.
Reminder - if your client is interested in trading leveraged or inverse ETFs, please make sure that they sign the ETF disclosure and send it in to Ops
or Compliance. If your client buys regular ETFs, the disclosure is not needed. The main concern with leveraged/inverse is from a risk stand point in
that the ETFs reset daily and there is potential large price movements that could occur, if they are held longer than a day; therefore, before selling
these products you must ensure that the client is suitable for these types of ETFs (Investment Obj - aggressive/speculative with high/max risk and
an ETF disclosure on file).
Let me know if you have any questions. The Attestation is fillable and should be returned for those that are dually licensed with both IPI and IPI Wealth
on or beforeSeptember 22, 2017. Thank you in advance for sending it back! I will be sending out an updated WSP with these changes