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For Broker-Dealer Use Only

The Culpability of Broker CultureCultureCheck logo

According to FINRA, fines and litigation costs to firms or their parent companies related to cultural failures are estimated at over $300 billion since 2010.

For a good part of this year, FINRA has been talking with numerous broker-dealers about their culture and whether that culture encourages the fair, flexible, and efficient participation of retail investors. According to agency insiders, FINRA is now completing their review of “how firms establish, communicate and implement cultural values, and whether cultural values are guiding business conduct.”[1] The agency will then prepare their next action steps regarding broker culture.

The reality is that most broker-dealers have spent little time to date doing any organizational soul searching.  Higher priorities associated with asset management and growth strategies including advisor recruiting/retention, succession planning, and anticipating the DOL fiduciary rule have relegated initiatives about corporate culture to the staff levels of their HR departments.  But not any more.

Broker-dealers now need to know how they stack up against known standards for the five major culture indicators identified by FINRA:

  1.     Whether the control functions FINRA values are within the organization;
  2.    Whether policy or control breaches are tolerated;
  3.    Whether the organization proactively seeks to identify risk and compliance events;
  4.    Whether supervisors are effective role models of firm culture; and
  5.    Whether sub-cultures (such as a branch, trading desk, or department) that may not conform to  overall firm culture are identified and addressed.

Broker-dealers are now well-advised to attain a comprehensive and objective assessment of their culture and its impact on their business practices.  Having such a critical baseline will be a cost-effective insurance policy that can help safeguard the firm when it comes under the increased level of culture scrutiny anticipated from FINRA.  It is time for the firm to reinforce those policies and procedures that may already be optimized for fairness, flexibility, and efficiency for their clients or shore up practices that are determined to be marginal or ineffective.

Contact neil@rifkinwernick.com to learn more about developing a thorough and comprehensive broker culture assessment along with specific and actionable recommendations to maintain your operating and compliance excellence.

[1] http://www.finra.org/industry/Establishing, Communicating and Implementing Cultural Values

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