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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Know Your Customer Or Sit With A Lawyer, Which Would You Rather Do

Posted in Arbitration, Broker-Dealer Regulation, FINRA Compliance, Public Customer Arbitrations, Registered Representatives

One of the more challenging things that registered representatives must do is to truly know their customers.  You cannot make suitable investment recommendations without knowing your customer.  My recent guidebook addresses things you can do to know your customer.

 Although knowing your customer seems so basic, many registered representatives take a very cursory approach to this analysis.  In one instance, we had a registered representative learn, for the first time, in the middle of a trial that his customer was a functional illiterate.  This made defending his covered call option strategy an impossible task.

 So how do you really know your customer?  Unfortunately, there is no guaranteed method to learn everything you need to know and, as important, ensure that your customer is telling the truth. 

 For one, try to gain as much objective information as possible; things like tax returns, investment statements, and bank account statements come to mind.  Next, do not be afraid to ask customers the tough questions to get the answers to make sure you really know your customer.  If you do your job on the front end, you can be reasonably assured that you will not get embarrassed in an arbitration.