2005 TECHNOLOGY

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TOOLS AND IDEAS TO MANAGE RISK
2005 TECHNOLOGY OPERATIONS CONFERENCE David
Tilkin, Moderator SunGard Director Compliance
Product Michelle M. Fridge, Financial /
Operations Manager BancorpSouth Investment
Services, Inc. Timothy D. Wasson, Chief
Compliance Officer Fifth Third Securities
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Become a HERO to your Compliance Officer

• Operations IS Front-end Compliance
• The very front of the front-end is the New
  Account Application.
• If it is not documented, it doesnt exist.
• Put it on the app for the client to sign.

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Dont just check if all the boxes are marked.
Look at what all of the information combined is
telling you. Screen for suitability and red
flags!
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HOT ISSUESVariable Annuities

• Reps like the big payout
• Age matters
• Where did the money come from?
• 1035 exchanges Do the math / Show your work!
• Is the cost worth it?
• What is the client getting thats different?

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Hint Compliance officers love it when the
information is in one place!
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More Hot Stuff! 529 Plans
October 26, 2005 NASD fined Ameriprise
Financial Services 500m and ordered them to pay
an additional 750m to customers for lack of
supervision in determining suitability of 529
Plans.
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More Heat!Fee-Based Brokerage

• Balancing the cost to the client and the cost to
  the firm.
• Pre-work Comparing commission vs. fee-based on
  the front-end.
• Do the math / Show your work!
• Dont churn, but trade enough . . . Utilize
  technology to generate reports annually monitor
  adequate trading activity.

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Rules EnginePrevention, Prevention, Prevention

• Stop it before it happens. Utilize technology to
• efficiently screen unsuitable trades before they
• are executed.
• Mutual Fund Switch alerts.
• Large B C shares mutual fund purchases.
• Penny stock purchases.
• Day trading monitors

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Books RecordsAffirm Reaffirm Information

• Affirm make sure all the info is on the app to
  begin with.
• Reaffirm a change in objectives is a heads up
  to managers.
• Document clients reasons for changing their
  investment objective or risk tolerance.

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Have the Rep sign to acknowledge the change.
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NASD Rule 3012Supervisory Procedures

• If it is unsuitable, it is your fault.
• Supervisors will be held accountable for all
  activity.
• Cover your bottoms document, document,
  document.
• And now . . . The Back-end!

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Back-end SurveillanceException Reports

• Mutual Fund Breakpoint Monitor
• Missing Account Information Documents
• 30-day Churning
• Broker-Customer Same Security / Same Day
• Large Dollar Mutual Fund Trades
• Mark-up / Mark-down Exceptions
• Timely New Account paperwork submission
• Suitability Screen Accuracy
• Large B-share Mutual Fund Trades
• VA Exceptions

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Written Policies ProceduresFollow-up
Investigation

• Define and formalize the process and steps
• Follow-up, Reviews, and Investigations
• Utilize other resources as appropriate (e.g. Bank
  Protection)
• Action
• Records and Follow-up

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Ramifications Resulting Action

• Trends and systemic issues need to be directed to
  Training
• Reporting up through Senior Management
• Regulatory Implications

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• TOOLS AND IDEAS TO MANAGE RISK
• Your Ideas and Questions!
• ROUNDTABLE DISCUSSION