Creating A Compliance Roadmap For Managers

Of Agents - By Deanis M. Groner

Increasingly, managers are finding themselves in the uncomfortable position of being held
accountable by companies and regulators for the market conduct and compliance of the agents who work
for them, report to them and work with them.

According to both managers of captive agents and managers of independent agents (e.g., managing
general agents), the workload of monitoring and supervising has increased as companies have shifted
much of the close supervision of market conduct to the agent's immediate manager.

In some cases this manager is the registered principal and his responsibilities may include endorsing
the suitability of variable product applications, correspondence review, periodic audits and annual audits.
The responsibility of registered principals is mandated by the NASDs guidelines that all broker/dealers
must live by.

But even for non-registered products, companies are seeing the manager as their first line of defense
against market conduct problems and holding them responsible for supervision and monitoring of the
market conduct of their agents.

A significant part of the compliance supervision workload is answering questions and resolving issues
that occur related to new business and complaints. Some questions can be answered quickly, because the
manager is knowledgeable about the agent's procedures or the case, but more often the manager must
gather information to answer the question. This takes time to accomplish and to document. Agents whose
business is delayed or questioned because of market conduct issues come to the manager for his help, and
this also takes time.

For managers with many company relationships the challenges are even greater. They must follow up
on changes to different company policies and procedures and keep up-to-date on what each company
expects. If they don't, they may find that they are monitoring the wrong things.

In addition, they must educate their agents and their agents' staff regarding many companies
compliance and market conduct procedures. It is an important, but sometimes difficult, task keeping
agents and their administrative staff up-to-date on compliance and market conduct policies and
procedures.

Managers who carry out their supervisory duties diligently also find that they are spending time
conducting audits or reviews of the files and practices of their agents. Even if these reviews are not
mandated by companies or broker/dealers, the compliance-savvy manager wants to be able to demonstrate
that he actively carried out his supervisory duties.

A manager knows that if an agent creates a market conduct problem, he needs to be able to defend
himself from the accusation that he was negligent in carrying out supervisory duties.

The compliance and market conduct supervisory workload is proving so great that many managers are
hiring administrative specialists whose jobs are primarily compliance- or market conduct-related.
However, delegating responsibility has to be done carefully. There is a fine line between delegating and
abrogating responsibility. Delegating supervisory responsibility to an inappropriate person or failing to
supervise the tasks delegated can create as bad a problem as not supervising.

The market conduct-savvy manager understands the liability that comes with supervisory
responsibility, and some managers are rightly nervous about being held accountable. Fines, disciplinary
actions and loss of contract are some of the unpleasant things that can happen to managers who do not
properly carry out their supervisory responsibility.

Many managers feel overwhelmed by the amount and type of work associated with supervising
compliance and market conduct. Part of their problem is that they do not have a clear plan for supervising
and monitoring compliance. They need a “roadmap” to navigate the complexities of compliance
supervision so that they can more easily carry out their responsibilities.

The following are the steps that managers can take to create their own “roadmap.”

1. Identify all of your supervisory responsibilities.

Check contract or selling agreements. There may be responsibilities outlined in those agreements that
carry with them the responsibility to supervise and monitor. For example, some managers' contracts
assign responsibility for training to the manager, which may include delivering and supervising
compliance training.

Question companies with which you have a relationship regarding whether you really have the
responsibility for agents in your office based on explicit or implied supervisory responsibility. For
example, some companies pay agents an additional stipend for managing a detached office. Does this
imply that these agents have supervisory responsibility for the other agents that work out of the office?

Get a specific description of your supervisory responsibilities from each company with which you
have a relationship. Make certain it is in writing and that it identifies what you will be held accountable
for. For example, reviewing the suitability of applications, maintaining appropriate agency files,
reviewing correspondence, conducting audits, keeping up-to-date manuals and files, etc.
 Identify the “emergency” or non-routine types of compliance supervision, such as a regulator
complaint, home office investigation, etc., in which you may be involved. Though these responsibilities
cannot be planned, you should still know what is expected of you when one of these situations occurs.

Ask the companies with which you have a relationship if you have any responsibilities for agents'
administrative staff. Some managing general agent contracts hold the general agent responsible for the
administrative staff in the agency.

Document and organize these responsibilities. If you have a relationship with only one company, this
amounts to a list. If you have relationships with a number of companies, this becomes a matrix, since
responsibilities may vary across companies.

2. Identify the information that needs to be used to carry out the responsibilities you have listed.

Identify when each supervisory responsibility has to be accomplished. Some responsibilities are
required on a per-application basis or on a monthly, quarterly or annual basis.

Reorganize your list in terms of when the responsibility must be carried out. Begin with the most
frequent activities.

Identify the information, e.g., reports, that have to be used to carry out your responsibilities. Include
this information in your list or matrix. Identify the information that needs to be maintained or
documented, e.g., forms, checklists, etc., as you accomplish your responsibilities. Include this in your list
or matrix.

3. Identify the guidelines that must be followed in carrying out these responsibilities.

Make copies of the company procedures and policies that provide directions in carrying out your
supervisory responsibilities. This information will serve as a reference.

Make copies of the forms and reports that must be completed. Obtain properly completed examples of
all forms and reports to serve as a reference or template.

4. Ask the company or companies you have a relationship with for resources to carry out the duties
they have assigned to you.

Obtain training for you and your associates.

Obtain the names of contact people in the home office to answer questions.

Find out if the companies are willing to help fund the cost of an agency compliance specialist.
 5. Organize all of this information by the task or responsibility.

Create a binder with tabs for each responsibility. Include under each tab the activities needed to carry
out the responsibility, the references, resources and information related to the carrying out the
responsibility.

You may want to color code sections under each tab by company or product depending on the number
of relationships you have or the number of products that require specific supervision.

6. Identify which responsibilities can be delegated and under what circumstances.

Ask the company that has delegated the responsibility to you for supervision what qualifications are
needed to be able to delegate a specific supervisory responsibility. In some cases, this may only require
training, while in others it may require licensing. In still other instances, you may not be allowed to
delegate responsibility.

If you have second-line managers, involve them in helping to carry out managing compliance in your
agency. Work together as a team to identify how to share responsibility.

Develop written guidelines for delegating, including describing how you will supervise the people
you delegate to. Since this is another supervisory responsibility, it will require another tab.

Pick someone who is qualified to carry out the delegated responsibility. This person should have the
knowledge as well as the authority to carry out their responsibilities. Often this will be your second-line
manager, but sometimes it may be an administrative staff person.

Provide training to the people you delegate responsibility to and follow up closely, especially when
they first begin to carry out their duties.

7. Develop a calendar for all of the routine or recurring tasks.

You should already have information on this from step 1. For some responsibilities, you may need to
work backward from the deadlines to identify when you must begin to carry out the responsibility. For
example, if you need to conduct an annual audit of each agent's practice, you may want to conduct the
audits over several weeks early in the fourth quarter so that you do not interrupt the agents year-end.

Share your calendar with your agents and their administrative staff, so that they know when to expect
audits, reviews, etc. For surprise or unannounced audits, you can tell them during what period you will
conduct the audits without specifying which agents will be audited.
 8. Set up a regular pattern for accomplishing tasks.

There are some tasks that need to be done every week or every month. Schedule these tasks on the
same day in your calendar, so that they become part of your regular routine.

9. Educate your agents and their staff and about their roles and responsibilities.

Educate your agents about your supervisory responsibilities and how they can help you carry it out
with the minimum of problems. Get their input on how best to accomplish your responsibilities, so that
you can attempt to minimize any inconveniences.

Train your agents and staff so that they can help avoid supervisory issues and concerns before you
implement new ones.

Educate your agents' administrative staff, so that they know what is expected of them and the agents
and how they can support your efforts.

10. Set up a periodic review date to check on how your supervisory process is working and identify
where it needs to be fine-tuned.

It is important to keep your supervisory procedures up-to-date. Set a regular date, e.g., quarterly, to
review that you are using the most up-to-date procedures and resources.

As you gain experience with supervisory procedures, you may want to increase or decrease their
frequency. For example, you may find that you do not need to review a specific persistence report more
than semi-annually to properly carry out your responsibility to monitor potential replacement problems.

Although these 10 steps to developing a compliance management roadmap may seem like a
significant amount of work, the manager who develops a compliance roadmap can rest assured that he
knows what compliance supervision needs to be done, how it needs to be done and when it needs to be
done. With a roadmap in place, the manager need only follow the well-laid-out path to accomplish his
responsibility for supervising compliance and market conduct.