Advisor Business Plan

Broker-dealer regulation & compliance in a retainer model

Most regulatory frameworks place the onus on the broker-dealer to provide proof that the transactions they are engineering are compliant with financial legislation. While this was not very challenging with AUM in that the transactions themselves are almost self-regulating, the retainer model throws up a whole new set of challenges. Broker-dealers have been hesitant to make use of monthly payment models as it is more difficult for them to monitor the work of their advisors.

Different states have responded to the need for monitoring in different ways. For example, some states require that a fee be held in escrow for a period of time and then for a third party to be the final distributor of these funds. This is to avoid what we have already identified as a major obstacle to compliance—the issue of having custody over a client’s funds. Broker-dealers have to ensure that their advisors are actually providing a service for the money they are charging. Not paying attention to compliance regulations can mean the death of your business, but should not be a reason to fear the retainer model. To navigate this path honestly and successfully, follow these steps:

• Research the regulations in your area by communicating as much as possible with regulatory bodies
• Document all interactions with your client to ensure you have a comprehensive history that you can draw on
• Make use of AdvicePay as a payment processor to avoid triggering custody.