Q: I recently had a problem where a court-appointed guardian for an elderly client was giving me instructions for trades that I thought were inappropriate for the client. I raised it with my supervisor who ran it past Compliance and we were told there was nothing we could do and to follow the Guardian’s instructions. I still feel uncomfortable with some of these trades. Is there anything I can do?

Compliance consultant Alan J. Foxman says FINRA proposed a new rule that would require firms to make reasonable efforts to obtain a trusted contact person for a customer's account.

A: Financial abuse of the elderly is becoming more of a problem as the population ages. Additionally, in some states, there have been problems with court-appointed guardians who are supposed to be looking out for the client’s best interests. I would hope that your chief compliance officer spoke with counsel and explored the possible options. If so, there’s not much else you can do from your end. You could, however, address it again with your supervisor and make sure you’ve documented your feelings. In some states it is mandatory to report suspected cases of financial abuse of vulnerable clients. You might ask your supervisor if you could speak with the firm’s attorney for your own protection. Recently, FINRA proposed a new rule that would require firms to make reasonable efforts to obtain a trusted contact person for a customer's account and would permit firms to place a temporary hold on a disbursement of funds or securities when there is reasonable belief of financial exploitation. The proposed rule would also allow the firm to notify the trusted contact of the temporary hold. Currently, FINRA's rules do not explicitly permit firms to contact a non-account holder or to place a temporary hold on disbursements of funds or securities. Nevertheless, in the case of a guardianship, it should be permissible to contact the court that’s overseeing the guardianship.

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Q: I have a friend in South America who wants to refer some clients to me. Can I pay him a finder’s fee?

A: Generally, a broker-dealer is prohibited from paying commissions (or so-called “transaction based compensation”) to someone who is not a registered representative. However, FINRA Rule 2040(c) permits a broker-dealer to pay transaction-based compensation in the form of a finder’s fee to a non-registered foreign person if the following conditions are met:

(1) The member has assured itself that the finder is not required to register in the U.S. as a broker-dealer nor is subject to a disqualification as defined in FINRA's By-Laws, and has further assured itself that the compensation arrangement does not violate applicable foreign law.

(2) The finder is a foreign national (not a U.S. citizen) or foreign entity domiciled abroad.

(3) The customers are foreign nationals (not U.S. citizens) or foreign entities domiciled abroad transacting business in either foreign or U.S. securities.
(4) Clients receive a disclosure document explaining the compensation that’s being paid to finders.

(5) Clients provide written acknowledgment to the member of the existence of the compensation arrangement.

(6) Records reflecting payments to finders are maintained on the member's books, and actual agreements between the member and the finder are available for inspection by FINRA.

(7) The confirmation of each transaction indicates that a referral or finder’s fee is being paid pursuant to an agreement.

The question of whether someone is required to be registered here in the U.S. can be complicated and space does not permit a detailed discussion here. However, generally if the finder is not located in the U.S. and is not referring U.S. citizens, then in most cases he or she would qualify for the exemption from registration.

However, the specific circumstances of each case must be considered for certainty.

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Alan J. Foxman

Alan J. Foxman

Alan J. Foxman is a senior consultant and vice president at NCS Regulatory Compliance, and a partner at the law firm of Dew Foxman & Haugh in Delray Beach, Florida.