There was no reason to think he’d need to embezzle to survive, and he had a spotless compliance history. Going to fellow board members and asking them to write a letter saying “The treasurer is a standup, ethical guy” made the advisor very uncomfortable, so he refused to do it.
He felt this was compliance overreach, so the BD would need to make changes in these over-the-top requirements for him to join the firm.
The 80/20 Rule
Large firms are black-and-white in how they operate because the large number of advisors makes them incapable of operating otherwise. Smaller firms with high-quality advisors have lower incidence of compliance issues because they know their advisors much better than larger firm.
Larger-firm management applies the 80/20 rule when it comes to pursuing relationships with their advisors, focusing on the top 20% at best. Meanwhile smaller firms know, and focus on nearly all of their advisors.
One indicator as to how well a BD knows its advisors is a firm’s ability to uncover Ponzi schemes. The only firms we’ve witnessed catch advisors in Ponzi schemes early in the cycle were small and midsize BDs because they know their advisors and are better able to closely track them on a compliance basis.
At large firms, Ponzi schemes typically aren’t exposed until they have imploded due to the lack of new investors to keep the scheme going.
The ‘Entrepreneurial Advisor’
Entrepreneurial advisors who think outside the box, wanting varying solutions…
