Saturday, March 27, 2010

Felonies and FINRA registration

A customer recently emailed a question to me that touches on an important testable point: statutory disqualification. Here is the question:

I have been charged with felony forgery in the past year. I received probation and did not inform my firm. When my broker-dealer found out, they updated my U5 and terminated me. Now FINRA is investigating me for failing to update my U4 with the felony forgery information. My criminal information is now on BrokerCheck. Can I realistically get hired in the business again?

Forgery is directly related to the securities industry and would be a big problem whether a felony or a misdemeanor. There are bad-boy agents out there who will sell a deferred annuity to an unsuspecting senior citizen, then tell the customer to sell the thing and conceal the nasty surrender charge by forging the client's signature on the paperwork to do the annuity sale or switch. Also, so much sensitive information is provided by clients to registered reps that any crimes of dishonesty are major red flags to FINRA. To follow up by failing to update your U-4 with the negative information also hurts, because, in their eyes, it's another blatant form of dishonesty. Then again, if you cooperate with the investigation, maybe they'll suspend you, which is temporary. A bar is also very likely, unfortunately, and--unfortunately--a bar means "game over" in FINRAspeak. Wish I could be more upbeat about the situation, but it doesn't look good. Still, why not wait to see how the investigation ends up. Talk to an attorney who works in this area. More bad news: your state Administrator is likely to also take action if FINRA alerts them of any disciplinary decisions. Be sure to cooperate with all the regulators and try to get some good advice and/or representation by an attorney, who will want his or her retainer upfront. Be sure to be sitting down when they quote their retainer. Cooperating with FINRA can only help, while refusing to cooperate will keep people out of the business permanently every single time. You might want to go to and look up the enforcement section and discplinary orders. Read through the recent cases that led to temporary suspensions and permanent bars to get a feel of how things generally turn out. I wish the violation were more of a goof-up than two separate acts of dishonesty. "A member, in the conduct of his business shall observe high standards of commercial honor. . . " is the basic creed of FINRA and all the other self-regulatory organizations. Without trust, the system can't function.

Series 7 Exam Help

Sunday, March 21, 2010

Hanging tough

It's early on a cold, rainy Sunday morning in Chicago. The calendar declares that "spring" has begun, yet the snow-covered ground plus my hat and gloves still point hard toward winter. It's easy to get discouraged on a day like this, to give up on being productive and start planning an elaborate afternoon revolving around deep dish pizza, DVDs, the Sun-Times, and a seldom-used sofa that's just crying out to be broken in this afternoon.
But no. That's not how things go in general. Yesterday, with cold wind and a wet snow pelting my face, I ran 4 miles through a local cemetery. Today, I'll give myself a break and merely work myself into a sweaty stupor at the local gym. Most test prep companies have dozens of writers and editors churning out their exam manuals and practice questions, but at Pass the Test, there is only one person producing all the practice questions, books, audio cd's, DVDs, and on-demand classes. In two days, that person is going to be 46 years old, which is why that person needs to stay in shape. A little rain and snow? Dress for the weather and snarl at the elements. A little tired on a Sunday afternoon? Sounds like a trip to the gym is in order.
The Series 7 is mostly an endurance event. You might think of it as one test, but it's really equivalent to a semester of college, 12-15 credit hours' worth of hard work. You need to be in shape physically, mentally, and emotionally for this challenge. I can't think of a better time to start an exercise routine. To start drinking more water than coffee, to start eating more vegetables and fewer potato chips, and to start cooking rather than ordering meals. The 3-4 months it will take to study for your exam would be a great time to start spending more time exercising than watching television. No time? Listen to our audio lectures as you walk, ride, run, etc. Our ExamCram questions will soon be available as an I-phone application; maybe you could ride the exercise bike while working practice questions a few times each week. Talk about getting the mind and body in shape!
The Series 7 involves a lot more than scheduling a test date, skimming a big, thick textbook, taking a few practice questions, and expecting to pass. Unless you're a genius, that approach will lead to a 30-day stay in the penalty box. If you think it's stressful studying for your first attempt, imagine the stress you'll feel studying after you've already failed the thing. With your company threatening to fire you and your bills piling up left and right. On the other hand, if you take a holistic, disciplined, diligent approach to this endurance event, success is almost assured.
So, what's it going to be?

Thursday, March 11, 2010

Closed-end funds

Closed-end funds are exactly the same as open-end funds, only completely different.
Let's look at the similarities:
  • both are portfolios managed by an investment adviser
  • investment objectives are often similar
  • both are investment companies
  • both are "management companies" as opposed to UITs and face-amount certificates

Now let's look at the differences:

  • open-end funds are redeemed for the NAV (net asset value)
  • closed-end funds are traded, independent of their NAV
  • sales charges and 12b-1 fees are charged to open-end fund investors
  • investors pay commissions to buy and sell closed-end funds
  • closed-end funds use more leverage offering auction-rate preferred shares to investors
  • open-end funds may continuously offer new shares
  • closed-end funds have a fixed number of shares