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Written by: Leon Morales
It has been more than seven years since the financial crisis, yet some firms continue to have significant violations due to poor cultures of compliance, FINRA Chairman and Chief Executive Richard Ketchum said in a statement.
"This year, FINRA will be looking for firms to focus on their culture and whether it is putting customers first and promoting risk management adaptable to a changing business environment," Mr. Ketchum said.
Recognizing that all of us have behavioral biases that are unique; building a firm culture can be one of the most important goals of the Financial Advisory Firm. Using People analytics to develop a client-centered solution breeds a culture of increased AUM without sacrificing integrity and authenticity of the firm goals.
This latest move comes after the Wall Street regulator listed firm culture as a 2016 examination priority. FINRA has defined culture as firm norms-those practices and behaviors within the workplace that have a “profound influence” on how firms run their business and manage conflicts.
FINRA is asking firms to provide information around eight general areas , including the polices in place that establish firm culture, how those core values are communicated and in what ways the firm measures and assesses the impact of those standards.
Use these suggestions to develop your own “Cheat Sheet” to ensure you are proactive in meeting these objectives.
1. Use a validated Risk Profile Solution that assists the Advisor in identifying the best-suited investments that match the client’s natural risk tolerance and return requirements, thereby, reducing complaints later on when the client’s natural behavior surfaces and he/she reacts negatively.
2. Create a platform with transparency into those Risk Profile and Behavioral Bias factors for both the Advisor and the Client. This will provide documentation of an environment that is focused the true Client needs, as well as, how the Advisor might be biased differently than the Client. Identifying mismatches and performing periodic reviews of transactions based upon this information will ensure accountability for the Advisor not to place the client in a non-suited investment.
3. Develop a behavioral bias learning environment so that the Advisors understand how hard-wired behavior is a major factor in how the client will react to different investments and market volatility. This can be done by using a behavioral bias discovery process and engaging the client in the process to help manage their emotions and expectations.