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 Are Yours? Do You Even Know It is Happening?
One website that is growing in popularity for advisors is Yelp.com. The ability to list your business and have people leave reviews is very tempting for advisors to use in hopes of gaining new clients. Unfortunately the use of Yelp is in direct violation of the SEC’s “Testimonial Rule” under the Investment Advisers Act of 1940. Recently, the Securities and Exchange Commission charged three advisers and a marketing firm for violating the testimonial rule by promoting their business on Yelp. These three advisors worked with a marketing company to solicit testimonials from clients asking them to post their reviews on the investment adviser's behalf to Yelp and other social media websites. Each of these advisors were fined $10,000. The marketing firm received cease-and-desist orders and were required to pay civil penalties of $35,000. YouTube is another platform that is rising in usage by advisors resulting in violations and fines. An Illinois-based RIA, was fined $15,000 for creating a 31-minute-long YouTube video that featured testimonials from multiple clients. The video was published on their public website and YouTube.com, and was shown to guests at a party celebrating the firm's 50th anniversary. This YouTube video was also in direct violation with the SEC’s “Testimonial Rule”. Are you actively monitoring Yelp and YouTube for these type of SEC infractions from your registered advisors? It can be difficult even knowing where to start. Over 4.6 million businesses are using Yelp. With an ever increasing 163 million Yelp reviews how are you to know if your advisors are actively soliciting testimonials from their clients? Adding to your monitoring struggle is YouTube. It is estimated that over 300 hours of video are uploaded to YouTube every minute! With over 1 billion daily users how are you to find videos uploaded to YouTube by your registered advisors if they don’t send you the direct links? Eagle Eye is a solution. With Eagle Eye precision our application will help you quickly identify any social media accounts including Yelp and YouTube that your registered advisors own. Allowing your firm to take action and comply with the SEC’s requirements. Eagle Eye’s automated documentation and screenshots of your findings will help you respond to a regulator. We’d love to show you more. Contact SiteQuest Technologies today to see how our application can aid in your supervision responsibilities, saving you time and lowering your risk. Related Article: Trends when it comes to supervising the web. Related Article: Known Compliance Gaps Sources: SEC.gov | Investment News  This summer the Securities and Exchange Commission instituted five separate settled fines against two SEC-registered investment advisers, three investment adviser representatives, and a marketing consultant who committed and/or caused violations of the Testimonial Rule under the Investment Advisers Act of 1940 through their use of social media and the internet. (read the entire article)
Several testimonial ads about registered representatives were created and published on social media outlets. Additionally, two videos were created and published online containing client testimonials on its public website and on YouTube.com. The SEC’s regulators found that these firms (and their ads) were in violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1). As a compliance supervisor are you aware of what ads your registered advisors are putting online? Are they creating and publishing videos without sending them first to compliance for approval? With all of your responsibilities how do you find the time to continually monitor your advisor’s online presence? Without action, this could leave your firm vulnerable to fines from the SEC or FINRA because of online content you are unaware of. SiteQuest Compliance's Eagle Eye application contains industry-leading technology that will help you monitor and discover your advisors’ online presence. Eagle Eye is designed with built-in intelligence that searches and sifts through the web’s billions of pages of clutter bringing only the most relevant results to your attention. Our multi-query processes and dynamically designed algorithms provide more accurate search results for you to quickly review. Our application is loaded with features that automate your monitoring and documentation processes. Our clients have found that Eagle Eye cuts their workload by as much as 80%. Each of these aforementioned firms were fined between $35,000 and $10,000 from the SEC. That fine just the tip of the iceberg. There are lawyer fees, employee time spent and resources dealing with the issue, proving to the regulatory agency that the fine has been fixed and that you are now in compliance. There is also the unknown cost to your firm’s reputation. Eagle Eye is a first of its kind application that is designed specifically to help the financial industry easily and effectively supervise the web. Contact us today to discuss your supervision concerns. We will be able to match our products to your needs.  Recently the Division of Securities, Utah Department of Commerce fined two credit unions and a licensed broker-dealer for failing to supervise the advisors working within the credit unions. (read the full report)
These credit unions are not registered broker-dealers or investment advisors. They entered into a networking agreement with a third-party broker-dealer to provide securities brokerage services to their credit union customers through registered representatives. In this case, the parties involved were not closely monitoring the actions and communications of these advisors with regards to how the advisors and the credit unions branded these services. The “lines were being blurred” and it was not clearly disclosed that these advisors worked for the third-party investment service provider, and not for the credit unions. The emails, marketing materials, communications in print and electronic were not being supervised and in the view of the regulator, causing confusion with customers being misled. As a result, the broker-dealers and the credit unions were fined $750,000. FINRA and the SEC are not the only regulatory agencies requiring firms to monitor their advisors. Each state has their own division of securities regulators. Have you entered into a third-party agreement with another company to provide security brokerage services to their clients? Do you have advisors that are working in the facilities of these partners? The biggest question of all is, “Are you sufficiently monitoring your advisors and their online presence?” The use of our Eagle Eye application would have identified where the broker dealers’ presence was online such as social media, blogs, online articles, Yelp, YouTube and more, allowing you to review each URL. Our SQWatcher application would have alerted you to any changes on their websites ensuring that your supervision department could review and approve wording changes before they go live on the web. We’d love to tell you more. Contact SiteQuest Compliance today to see how our applications can aid in your supervision responsibilities, saving you time and lowering your risk. 4/3/2018
KNOWN COMPLIANCE GAPS I’M SURE I HAVE SOME COMPLIANCE GAPS, BUT DON’T KNOW WHERE TO START...
It can be very challenging for financial firms to search, monitor, and document their advisor's web presence and registered websites without interrupting day-to-day business demands and operations. Yet failure to do so can leave exposed compliance gaps unaddressed and open your firm up to fines and disciplinary actions from regulatory agencies. Common compliance gaps often include improperly documented or improperly enforced policies and procedures, insufficient evidence of a WSP, undisclosed OBAs and social media accounts, as well as rogue advisor websites. Many firms know that they have gaps, but they don’t know where to start. FINRA publishes a monthly disciplinary report with actions and fines against firms and individuals. One of the most common fines involves undisclosed OBAs. Currently, many firms work on the “honor system” with hopes that their employees with be completely honest and disclose everything required. Unfortunately, this honor system doesn’t always work. How are you to find out if your advisors have an undisclosed OBA? That is where Eagle Eye can help you close this gap with our deep web searching technology that quickly cut through the clutter of the web and bring to your attention relevant results when monitoring your registered reps. Do you know if your advisors have disclosed all of their social media accounts? In a recent random sampling of 10 employees from a prospective client, our Eagle Eye solution found serious violations with three of the advisors including several OBAs and social media accounts that were never disclosed. This is a typical compliance gap for many firms. Is this one your firm is facing as well? Are you sure that your firm is monitoring all of your advisors online advertising? Do you have a process in place that is easy to demonstrate to a regulator? Do you even know if they are producing advertising that you are unaware of? This could be another compliance gap your firm is facing. In addition to all of the supervision regulations, you need to prove that your firm has WSPs in place to help document all of the actions your firm is taking to monitor web presence. For many firms, this turns into another compliance gap they need to address. You have a broker-dealer responsibility to monitor every website that your advisors' utilize for business purposes. Many times, advisors want to have their own website to help them stand out among the thousands of other financial advisor websites out there. How are you monitoring these websites? Are you notified of every change automatically so that it can be approved? If not, here is another compliance gap you might be facing. Recently there has been an increase in fines imposed by FINRA regarding website monitoring. Just like this fine imposed just a few months ago. SiteQuest Compliance's SQWatcher program is an easy to use solution that will quickly help you fill this gap at a fraction of the cost of a fine. Then to complete all of this monitoring you need to document all of your findings in an organized manner. Many times this is the last step in the compliance process and yet it can become one of the largest compliance gaps for a firm. Our automated documentation features found as part of our programs are detailed and searchable. We provide you with all of the information you need to respond to a regulator. SiteQuest Compliance offers programs, support, and experience to help you bridge these gaps and respond to a regulator. A firm that is able to demonstrate compliance with tangible evidence will mitigate risks, such as costly regulatory fines, and be better prepared for unannounced visits from regulatory agencies. Contact us today and talk to us about any gaps you need help addressing.  On February 10, 2016 the courts issued a decision addressing regulatory investigations that must be disclosed. This affects the SEC Rule 17h regarding required legal disclosure. – Read the full text report.
This significant decision will affect SEC Rule 17h with regards to reporting broker-dealers. This rule states that material legal disclosures must be reported to the SEC on a quarterly basis. A majority of companies refer to their accountants and/or auditors to figure out the materiality factor. A common practice approach has been to focus on the numerical information rather than a legal argument. However, this particular decision may encourage companies to look at their legal disclosure aspects from a different point of view. This report states that; “The question is not whether [a defendant's] silence can give rise to liability, but whether liability may flow from his or her decision to speak concerning material details without revealing certain additional known facts necessary to make his statements not misleading. This question is answered by the text of Rule 10b-5(b) itself: it is unlawful for any person to 'omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” Marina Baranovsky from Scitus Consulting an expert in this field noted that this argument of materiality of legal proceedings is very different than balance sheet materiality approach. The potential effect of the misstatement on trends, especially trends in profitability is an issue that compliance supervisors need to continually be on alert for. Ms. Baranovsky commented that it will be interesting to see how this significant decision will affect SEC Rule 17-H reporting Broker-Dealers in the future. Many companies in the past referred to its accountants and/or auditors to figure out the materiality factor. However, this particular decision may encourage companies look at their materiality of legal disclosures from a different point of view. This broadens the focus from primarily numerical reports which were more simplistic, to a combination of numerical, legal and ethical considerations. 7/15/2015
EAGLE EYE CASE STUDY HITS THE NEWS The Financial Technologies Forum recently posted a brief case study on how Eagle Eye has helped EFS Advisors replace the manual Google searching process they were using to attempt to satisfy regulatory supervision requirements for both FINRA and the SEC.
Big thanks to Matt Rothchild at EFS Advisors for participating in this case study and of course, thank you to Eugene Grygo at FTF for the write up. FTFNews.com offers free 2 week trials that do not require a credit card, so take a moment to check out it out today. |
About James CellaJames Cella is the President of a growing and innovative compliance technology provider called SiteQuest Compliance. James is a customer-centric individual and focuses on building and sustaining positive and lasting relationship with his clients and partners. James and his family are "super fans" of Utah Football and have attended nearly every home game since 2002. Go Utes! Archives
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