In Failure to Supervise: An Inside Perspective, securities expert witness Alan Besnoff, Securities Expert Witness & Litigation Support, LLC, writes:
This article will examine the variety of steps and actions that can and should be taken by a firms’ Supervising Principal to assure that the proper degree of supervision of brokers is being performed.
Let’s begin with a quick review of why it is that in so many circumstances, supervisory responsibilities are not fully being met.A review of the typical field Supervisory Principal or Branch Manager compensation package reveals the true priorities of the firm and therefore how field supervisors are encouraged to spend their time and effort. There are two primary results for which Supervising Principals are rewarded; branch sales production and recruiting.
The firm culture may be so centered on these two primary activities as to include constant reinforcement through bulletins, e-mails, meetings, conference calls, quarterly campaigns, reward trips, added bonuses, and other incentives. The message to Supervising Principals in the field becomes quite clear. Spend as much time as possible to obtain these desired results and as little time as possible on other “distractions” (such as the proper supervision of brokers). In some company cultures’ the high level of sales production by top producers may be so valued that Supervising Principals are encouraged to not “rock the boat” when it comes to thorough supervision of such highly valued producers..
In my 25 years of personal experience with supervisory responsibilities, I have received significant compensation, including bonuses, stock awards, luxurious trips, and other incentives for branch sales production and recruiting. During the same time period however, no compensation was received for such accomplishments as having surprise branch inspections by regulators conclude with the outcome of “no findings”, or having a total lack of customer complaints within the branch, or for having developed and implemented systems to assure thorough supervision of brokers within the branch was occurring.
For a Supervising Principal to have a true dedication and commitment to fulfill his or her supervisory duties and responsibilities he or she must have the ability to resist all of the short-term incentives (as described above), challenge the company culture, and develop and implement local policies and procedures to assure that thorough supervision of brokers are in place and consistently executed. What assisted me in meeting this challenge was to view my role as having the ultimate responsibility to assure that any and all. transactions, trades, or recommendations by brokers within the branch were truly in the best interest of the client. It was also helpful for me to view my career as being long-term, and recognizing therefore that my most valuable of assets included reputation, integrity and an unblemished record. As one who truly valued the good and ethical work being performed by the majority of practitioners within the financial services industry, I have been honored to do my small part to protect the industry and community from the “bad apples” that would spoil the reputation of ethical practitioners.