In 2016 FINRA sent a “sweep letter” to selected firms requesting the information about cross-selling incentives for broker-dealer employees. These sweep letters and the information they request are often a roadmap showing how firms should be evaluating their Compliance Programs – in this case, around cross-selling incentives.
What Should my firm be doing?
Firms should review their Compliance Program, and in this case, with a special emphasis on the firm’s cross-selling practices. Firms should determine:
Performance and Benefits
- What monetary and non-monetary benefits are available to employees related to cross-selling;
- How the firm is tracking and evaluating employees’ performance related to cross-selling programs, and how those metrics are applied to performance ratings, promotion and termination decisions
- How many, if any, employees have been terminated for not meeting production goals or for engaging in improper activities relating to cross-selling
Policies and Procedures
- What supervisory and compliance procedures, exception reports or other controls related to cross-selling programs are in place, including those used to detect unsuitable or unauthorized sales of products of the affiliate/parent to the broker-dealer’s retail customers or the opening of broker-dealer retail accounts without the customer’s authorization.
- What advertising and marketing methods are used to cross-sell
- What information firm employees are receiving about cross-selling programs and how they are receiving it, including training and education materials;
Escalation and Reporting
- What procedures are in place to escalate and report, capture and respond to matters relate to cross-selling
- What reviews have been conducted by external parties (consultants, law firms, etc.), and what reviews, inquiries, reports or other initiatives have been conducted internally at the direction and the firm’s – or its parent company’s – Executive Management, Board of Directors
- Documentation of complaints, litigation, arbitrations or internal disciplinary or other actions, as well as whistleblower, ethics, or other written, electronic or oral complaints related to cross-selling programs
- What broker-dealer retail customers (if any) who: (1) had accounts opened on their behalf without authorization, (2) had features added to their accounts without authorization, (3) had bank products of an affiliate/parent added to their accounts without authorization or (4) were reimbursed (include the reimbursement amount) due to improper activities related to cross-selling programs, and how these customers were identified.
- Revenues flowing to the firm from its affiliate/parent, as a result of cross-selling
Ensuring that your compliance program is robust and current with ever-evolving regulatory requirements is an important factor when it comes to protecting your business. Oyster provides comprehensive and targeted compliance program reviews conducted by consultants who have sat in your seat, facing the same obstacles and regulatory scrutiny. Oyster will not only provide your firm with a written report of problem areas, but will also identify best practices.
