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Compliance and the Elimination of Rogue Behavior

I ran across this article that I wrote back in 2001, and it still relevant today.

One Rogue Advisor’s Behavior and Questionable Acts places the entire profession under high scrutiny.

Regulatory associations are contemplating making it mandatory for dealer firms to report complaints to the associations with the publication of data bases of disciplines against financial advisors with public record of problems that firms and their representatives have encountered.

Unfortunately, emphasis is placed more upon performance which can be Unmet Needs-based versus superb service which is always Values-based.

Individuals who do well at the output level can be given a great deal of slack and a great deal of recognition suggesting that some financial advisors may be tempted to act in questionable ways. This is not to say that this is direct encouragement from the firm but is an added temptation.

The Unmet Need of Recognition along with the Unmet Needs of Achievement, Approval, Control, Respect and Security are all symptoms of Rogue Advisor’s behavior and questionable acts. The challenge is that the source of the financial advisor’s fulfillment is from outside of themselves versus from within.

An Unmet Need of Approval will override or dominate a financial advisor’s judgment of a client’s suitability relating to the “Know Your Clients” rule or conflict of interest. Financial advisors have a responsibility to provide their clients with recommendations on investments that are only suitable for them. What an advisor tells his clients about an investment can be very interesting. If a financial advisor has an interest in a particular area, such as tech stocks, he may come to believe that he knows a lot about this particular area. Instead of giving clients well-researched information, he is giving information that is designed to encourage them to invest enabling the financial advisor to meet their Unmet Need of Approval.

If we equate losing a client or a commission with the Unmet Need of Security, at least metaphorically, people in lifeboats often act in a way that is less than philanthropic.

The insatiable drive to get the Unmet Need of Achievement met from selling new clients will cause failure to keep up with current regulations and current client file updates relating to changes in clients careers, family status, income and risk tolerance.

One of the biggest mistakes a financial advisor can make is to assume that because a client talks aggressively about investments, that he actually is aggressive. The client may be influenced by his own Unmet Needs of Security causing him to be overly aggressive. As a financial advisor, if you have a client who is making quick decisions or someone else influences the client’s Unmet Need of Approval and you think that they are wrong, you may want to consider parting ways.

If the client does not agree with the financial advisor’s style, the advisor might be tempted to do what the advisor thinks is better, but that will lead to trouble. The Unmet Need of Control could influence an advisor to sign on behalf of clients and filling in blank or incomplete forms without the client being present. The Unmet Need of Control could influence an “I know better than you” mentality; it is not necessarily spiteful just a belief that what the client wants or needs can be accomplished in a better way than what the client has set out.

There are many ways to for the financial advisor to reach the client’s goals. It is a matter of managing the client’s expectations and to understand the concept of Values and Unmet Needs-based goals.

If the client and the advisor disagree with an investment strategy, the advisor does not have to have him as a client.

It takes a financial advisor that has identified and met his Unmet Needs allowing him to be detached, brave and professional to resign from an account but the financial advisor will never be in trouble with compliance.

– ideas for Compliance and the Elimination of Rouge Behavior taken from “Compliance Check” – Advisor’s Edge Magazine December 2001