For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, William Arnold Blair submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of William Arnold Blair, Respondent(AWC 2011029373701, September 13, 2012).
Blair entered the securities industry in 1982, and from 2001 through August 22, 2011, was registered as a General Securities Representative with Stephens Inc.
According to the AWC, from December 2009 until August 2011, Blair failed to disclose to Stephens that he had acted as a compensated executor for the estate of a customer. FINRA deemed such conduct as constituting the nondisclosure to his firm of an outside business activities in violation of NASD Rules 3030 (for conduct before December 15, 2010), and FINRA Rule 3270 (for conduct after December 14, 2010) and FINRA Rule 2010.
Additionally, from April 2010 to August 2011, the AWC alleged that Blair failed to notify his firm that he had opened a securities account at another member firm in violation of NASD Rule 3050(c) and FINRA Rule 2010.
In accordance with the terms of the AWC, FINRA imposed upon Blair a $10,000 fine and a 3-month suspension from association with any FINRA member firm in all capacities.
Many industry professionals may be scratching their heads - being an executor is an OutsideBusiness Activity ("OBA")? For starters, note that FINRA pointedly characterized Blair because he was a "compensated" executor. So, no, he didn't undertake the role for free; moreover, it does not appear that Blair notified his member firm in writing of his role as an executor for a customer.
Many brokerage firms have a very negative attitude about registered persons acting as trustees or executors because it often opens up a whole nasty can of worms about over-reaching and frequently attracts the unwanted attention of lawyers for unhappy family members who didn't quite get the bucks that they anticipated when good old Uncle Joe or Aunt Jane died. Consequently, registered persons should always confirm in advance with their employer firm whether serving as an executor for a customer is okay - and if the firm says "yes," then make sure to comply with all internal notice requirements and FINRA's rule.
Of course, in Blair we have the regulatory daily double of OBA and Away Accounts violations. As to employees maintaining brokerage accounts at other firms, it's not rare and often motivated by something as simple as discounted executions, or the existence of joint accounts with spouses, family members, or acquaintances, and those other parties prefer that the assets be held someplace other than the subject registered person's employer.
Major financial organizations such as Bank of America, Wells Fargo,Citigroup, Morgan Stanley, UBS, and JP Morgan face considerable challenges trying to monitor various accounts of their employees and such problems are often exponentially exacerbated when away accounts get tossed into the universe to be monitored. Which may well explain the reluctance of many financial institutions to permit away accounts; and, accordingly, may also explain the focus of FINRA and other regulators on such policies and procedures. Sometimes it truly is simpler to just say "No."
FINRA Rule 3270. Outside Business Activities of Registered Persons
No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of NASD Rule 3040 shall be exempted from this requirement.
.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of NASD Rule 3040. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).
Away Account Rule
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NASD Conduct Rule 3050. Transactions for or by Associated Persons
. . .
(c) Obligations of Associated Persons Concerning an Account with a Member
A person associated with a member, prior to opening an account or placing an initial order for the purchase or sale of securities with another member, shall notify both the employer member and the executing member, in writing, of his or her association with the other member; provided, however, that if the account was established prior to the association of the person with the employer member, the associated person shall notify both members in writing promptly after becoming so associated. . .
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