The NASD Has Clients’ Number
The NASD will be increasing its use of unsolicited phone calls to clients within the course of investigations into broker/dealer activities, an official from the agency said at a conference Tuesday.
The self-regulatory organization has angered executives with calls to clients who have not lodged complaints, but, if anything, use of that tactic will increase, according to Elisse Walter, executive vice president of regulatory policy and programs at the NASD.
In response to a question from the audience at the SIA’s 27th Sales and Marketing Conference in New York, Walter said: “You’ll see us reach out more often to noncomplaining clients.” She said that if something raises a red flag to the NASD, such as complaints arising from one particular branch or related specifically to one particular issue—such as the appropriateness of fee-based accounts, which the NASD did call clients on—that regulators will take steps to find out of there’s a “systemic problem, which we find in reaching out to clients who have not yet come to us.”
The extended reach of regulators has upset firm execs in the past because of what they say was a more accusatory tone taken by regulators who contact clients, saying that they’re “investigating” a particular firm for a violation—although execs say the NASD has softened that approach.
Walter, in her remarks, also addressed concerns that brokers have raised about the NASD’s approach to the appropriateness of fee-based accounts. Executives, such as Dick Averitt of Raymond James Financial, have complained that the NASD is taking a narrow approach to the appropriateness of fee-based accounts, their opinion solely based on whether a transaction arrangement would have cost less than a fee-based arrangement.
“Attention to this has been somewhat misunderstood,” Walter said, saying the cost issue wasn’t the only reason for this investigation. She said that in the course of the investigation, the NASD has found inadequate disclosure about fee-based accounts, poor training of reps on how to handle these accounts, some accounts where no broker was assigned to a fee-based account, lack of periodic review and, most alarmingly, instances in which a load mutual fund was placed in a fee-based account, resulting in a double whammy for the client, although she said this hasn’t been widespread.
