Tips/Tricks for Managing Outside Brokerage Accounts
It’s not uncommon for broker-dealers, financial advisors and professionals alike to invest in accounts outside their member firm. Although engaging with these types of accounts is allowed, there are several guidelines the associate member, or employee, needs to follow in order to maintain compliance with FINRA Rule 3210 – Accounts at Other Broker-Dealers and Financial Institutions, which went into effect in 2017.
FINRA Rule 3210, which states, “No person associated with a member (“employer member”) shall, without the prior written consent of the member, open or otherwise establish at a member other than the employer member (“executing member”), or at any other financial institution, any account in which securities transactions can be effected and in which the associated person has a beneficial interest,” and regulates how an employee can open and maintain accounts outside of their member firm.
This article will breakdown the rule as it affects the employee, the member firm and the external financial institution while explaining how third party vendors can help simplify the outside account management process.
A Bit of Background on the Rule
Let’s start with the key player in this scenario, the employee. When the employee decides to open an account at an external financial institution, he must first obtain written consent from his member firm. This consent is needed whether the account will be opened for the employee himself, or for someone he is closely associated with, including a spouse or child. On the contrary, the employee must also notify, in writing, the financial institution of his relationship with the member firm. Once the employee has completed these steps successfully, he is free to open the account.
What if someone has an account open prior to working with the member firm? Just because a new employee has an account opened with a financial institution prior to becoming a member of the firm, does not mean he is “grandfathered” in. The employee, within 30-days of becoming associated with the member firm, must obtain written consent from his firm indicating that he can maintain the account. Additionally, the employee must notify, in writing, the financial institution of his association with the member firm.
The member firm has a few responsibilities of its own. In addition to setting policies for the firm and investigating the request to determine if it abides by said policies, if the employee’s request is approved, the firm is required to obtain and manage any statements associated with the employee’s outside account.
Managing Accounts from the Member Firm’s Perspective
While this concept seems fairly easy to follow, we understand that managing these approvals/statements has proven to be a challenge for many firms, large and small. For the firms out there attempting to manually manage this process, we send our condolences. By utilizing a vendor like Quest CE, your firm could easily manage this process through an online dashboard, which ensures that all the information is stored in a centralized location.
Here’s how it works:
Outside Account Disclosure – When your employee is getting ready to open an account at a different financial institution, he/she will benefit from being able to disclose this information to you through an online database. Congruently, when an outside account request comes through, the member firm can utilize the system to review the activity, approve/reject it or request more information, if necessary.
Statement Management – Within that same system, member firms have the ability to upload statements received from external financial institutions. Once in the system, statements are stored in a WORM-compliant digital warehouse, ensuring that these important documents are never misplaced or tampered with.
Risk Alerts – Our system also includes functionality that allows you to execute risk alerts that will inform you via email if/when a certain trading activity occurs or trading limits are exceeded.
Statement Gap Reporting – We also have reporting options that showcase gaps in activity, or statements that are missing during a designated time interval, which could be monthly, quarterly or annually.
An outside account tracking service serves as a first line of defense against identifying and mitigating potential conflicts of interest. By keeping tabs on outside accounts, firms are able to track trades and report on any activity that may be considered suspicious or inappropriate in accordance with their written supervisory procedures, significantly reducing the risk of non-compliance and the related consequences.
If you’re looking for an effective outside brokerage account tracking service to help combat potential conflicts of interest at your firm, give our dedicated sales team a call at 877.593.3366, or email us at email@example.com.