With its aggressive scrutiny and costly enforcement actions, NASD has some planners shaking in their boots. But where others see pitfalls in trying to weave their way through the regulatory maze, Allstate Financial's Meeting Manager Laurie Fitzgerald, CMP, and Assistant Vice President and Chief Compliance Officer Maribel Gerstner, Allstate Distributors & ALFS Inc., see a way to increase their company's competitive advantage.
They face a considerable challenge. Regulatory guidelines are notoriously vague, making compliance a touchy proposition. In addition, NASD has ramped up enforcement. In 2006, the regulatory body, which oversees approximately 5,500 brokerage and securities companies, filed 1,204 new actions, expelled 15 firms, and suspended another four. In 2005, NASD hit the brokerage industry with $125 million in fines — a huge increase over 2002 and 2003, when it collected $68 million and $33 million, respectively.
The increasing regulatory activity did not go unnoticed by Fitzgerald and Gerstner, whose offices at Allstate's Northbrook, Ill., headquarters are around the corner from each other. That proximity, and the recognition that they both need to work together to make sure that Allstate is compliant with NASD guidelines when it comes to meetings, has led to a close working relationship.
Ahead of the Curve
Gerstner moved into her current position as chief compliance officer about five years ago, just as NASD was beginning to focus on meetings and other noncash-compensation issues. Fitzgerald joined the company in 2002, and they immediately began working together because the company was integrating its meetings and compliance functions. Since then, Gerstner and Fitzgerald have developed a working familiarity with the regulations pertaining to gifts, travel, entertainment, and educational meetings; committed themselves to accurate record-keeping about compliance issues; and made sure that the wholesalers and producers affiliated with Allstate Financial have been properly informed about what is — and isn't — appropriate at company meetings. Their goal, as Fitzgerald puts it, is “to not find ourselves on the front page of the Wall Street Journal.”
During the course of a typical year, Fitzgerald plans approximately 65 meetings, trade shows, and other events that support Allstate Financial's distribution channels. These include regional client educational conferences of approximately 60 people who are financial consultants or advisors; Allstate-sponsored client events that vary from 25 to 100 attendees; and internal meetings, including sales training meetings and sales conferences, all of which vary in size from 20 to 75 attendees and are held across the United States over multiple days.
For all of these meetings, it can be a struggle at times to be proactive about compliance. Telling an attendee that he or she can't bring a spouse to the dinner that follows an education meeting, for example, could seem unduly harsh to someone unfamiliar with the NASD regulations. “In a competitive marketplace, getting our producers to understand the rules can be a real problem,” says Gerstner. Allstate's retail distributors have choices, she adds, and if they perceive that the competition offers meetings with a little more pizazz, they might choose the competition.
“It's no secret that firms used to hold really extravagant, appealing meetings,” Fitzgerald says. “And we would hear back from our wholesalers about the kind of meeting that so and so does, and we would get the question: ‘Why are you so strict?’”
But, says Gerstner, NASD's high-profile enforcement escalation has caused other companies to begin scaling back the meeting perks. “There's so much more awareness now. Many firms have been embarrassed by regulatory actions, and the reps are getting more familiar with what has been happening, so it's become a little easier for us. We are in a better competitive landscape.” Meeting attendees, notes Gerstner, are more understanding these days about programs that may be less exciting due to the need to conform with NASD guidelines.
Fitzgerald says she still gets comments from attendees when the issue of guests comes up. “I simply explain to them that due to NASD guidelines, no guests or spouses are allowed to attend [a meeting],” she says. “And if I get questioned further, I explain that we [Allstate] don't want to be in the position of being fined for noncompliance. They seem to understand that it's NASD, and not Allstate, that's pushing back on this issue.”
In any event, Fitzgerald believes her meetings are compelling enough to attract attendees, even without the extras NASD rejects. “We make sure that we have a solid agenda, filled with value-added content that includes ways the brokers can improve their business,” says Fitzgerald. “It is not about us talking about our products, but about how we can partner with our clients to help increase their sales. And while we make sure that our location fits within the NASD guidelines and makes sense from a business point of view, we can still make it attractive to the attendees.”
Staying compliance-savvy means both Gerstner and Fitzgerald need to keep abreast of regulatory issues. An estate and tax attorney by training, Gerstner spent the bulk of her early career in tax planning with the accounting firm Arthur Andersen LLP. She came to Allstate 14 years ago, working in the advanced tax planning area before moving to her current position. In addition to having taken the appropriate NASD compliance examinations, Gerstner has also received her CRCP (Certified Regulatory and Compliance Professional) designation by earning 120 credits through the NASD Institute at Wharton Certificate. Designed to provide compliance professionals and executives with a comprehensive course of instruction on the foundation, theory, and practical application of securities laws and regulations, the designation — introduced in 2000 — is “not too common,” among compliance professionals, yet, says Gerstner.
As for Fitzgerald, “I try to read everything about compliance issues I can,” she says. “I pretty much understand the general guidelines so that I know when I need to ask questions [of Gerstner] or not.” Allstate Financial also holds an annual compliance meeting, which is NASD-mandated, Gerstner says. “The meeting covers any recent regulatory developments or rules,” she notes. “We also discuss those NASD rules that are most applicable to our broker/dealers. For example, every year we cover the NASD advertising rules, the noncash-compensation rules, anti-money laundering compliance issues, and our reps' reporting requirements.”
Fitzgerald takes every meeting through a step-by-step process to make sure it is compliant with NASD guidelines. For example, in January 2007 she began planning four identical road show programs for Allstate bank clients in four different geographic regions. Called the Allstate Financial Institutions and Independent Planner Divisions Educational Conference, the programs began in June and included 50 to 90 brokers from participating banks. The one-day agenda had six hours of education-al content, including a presentation called “Buying Signs,” by Bill Acheson, an expert on the art of nonverbal communication.
For Fitzgerald, one of the trickiest aspects of planning these meetings is site selection. NASD Rule 2810 says that a training or education meeting must be held in a location appropriate to the purpose of the meeting. “The word appropriate is important here,” says Fitzgerald. She points to a case in which one of her wholesalers requested a site that probably wouldn't have passed regulatory muster. “Our wholesaler's territory included Florida and Puerto Rico. He wanted to get his representatives together for a small education conference in Puerto Rico, which he considered the more appealing destination. But 90 percent of his representatives would be coming from Florida. There was no strong business case to be made for holding this meeting in Puerto Rico.”
For the regional banking meetings, Fitzgerald zeroed in on four cities: Washington, D.C., which has a high concentration of banks and is conveniently located for Allstate's East Coast clients; Chicago, which covers the middle of the country; Palo Alto, Calif., which is centrally located on the West Coast; and New York, for those clients located in Manhattan.
Hotel selection can be tricky as well. “For most meeting planners, the question is simple,” says Fitzgerald: “Where can I get the best possible deal in the best possible location? But all of these NASD rules mean I have to be concerned about terms like reasonable and appropriate and have to worry about a location being too extravagant. My gosh, how on earth do you define all of those words?” For the regional banking meetings, Fitzgerald says she looked at space options at some of the more high-end properties in the host cities and, based on rate, location and appeal, made the selection. (Allstate provides hotel accommodations for attendees traveling more than three hours by car or those required to fly.)
In short, Fitzgerald continues, “You may not want to put your people up at a one- or two-star property, but it may not be appropriate to hold your meeting at the highest-end resort, either. It depends whether I can make a business case for staying at a certain property. If I've got a good deal at the Four Seasons in Washington, D.C., then I can probably justify using that hotel from a business perspective.”
One Big Spreadsheet
Compliance also comes into play when developing meeting content and managing attendee lists.
While NASD does not set specific guidelines about meeting agendas, the program “should obviously be business-related,” says Gerstner. In addition to making sure that the agenda accurately portrays the meeting's content, “we are even more concerned that there is sufficient education to cover the amount of time we are hosting the reps. Every meeting must have six hours of content for each eight-hour meeting day.”
Issuing invitations and tracking attendee lists for the banking road shows will account for about 40 percent of the time Fitzgerald spends planning those events. “I'll probably spend about two or three hours a day tracking the approvals of the reps invited to come to the meeting. It's like managing a registration process — it's very cumbersome. The actual meeting planning is the simple part.”
As far as record keeping is concerned, accurately recording approvals is critical in the event that the meeting is subjected to NASD inspection.
The process works like this: After determining dates, locations, and agenda, Fitzgerald works with her regional director to send her key Allstate account people out to the banks. These firms, Fitzgerald explains, make the decisions on which reps can and can't attend a meeting. (Disciplinary action against a broker, for example, could disqualify him or her from attending.) “I have to keep track of all that,” says Fitzgerald. “If they're approved, they get highlighted in green; if not, it's red; and if a decision is pending, it's black. It's crucial that I make sure that no one comes to one of our meetings who is not supposed to be there.”
The same rigorous record-keeping, says Fitzgerald, is necessary to reconcile all of the meetings' financial records. “We need to know exactly what we've paid for, and what we haven't paid for,” she says. For example, Fitzgerald mandates that master bills from hotels include only the room rates and taxes. “Anything else on that bill, whether it's room service or a movie rental, we're not going to pay. We don't want it on the bill so we can avoid any kind of rule interpretation problem. I'll dispute the bill unless it's absolutely clean.”
Record-keeping is also complicated by the fact that Allstate attendees come from various companies that have their own guidelines pertaining to meetings. “We could be dealing with 50 different companies for one meeting, all with their own sets of rules,” says Gerstner. “One firm might mandate that we can't spend more than a certain amount of money per person. Another might require eight hours of educational content at the meeting. It gets complicated when you're trying to accommodate all those different requirements at one meeting.”
“It can get confusing,” agrees Fitzgerald. “I've got one firm that's sending reps to a meeting and they won't let us pay for their airfare but will allow us to pay for their ground transportation. So the record-keeping sometimes has to be done kind of piecemeal. Sometimes it seems like my desk is just one big spreadsheet.”
Compliance Sniff Test
While a general familiarity with the rules and regulations helps to limit the amount of time Fitzgerald and Gerstner must spend being “meeting police,” they do have to be vigilant about every aspect of the meeting. There are occasions when they have to nix certain meeting activities that might not pass the compliance sniff test.
Golf outings can be particularly troublesome, says Gerstner. “Our rule — and we believe it's in the spirit of the NASD rules — is that you can pay for “reasonable” business entertainment. You wouldn't take a group for a round of golf at Pebble Beach [which costs more than $400 to play], but certainly you could take a foursome to a local course to play some golf while they talked about business.”
On the other hand, Gerstner says, if the golf outing involves 10 foursomes that are split up in such a way that it's clear no business will be discussed, NASD would not consider it compliant.
“The same holds true for meals,” Gerstner says. “We'll get asked whether it's proper to entertain a large group at a nice restaurant. Well, if you provide the meal, and the only business conducted is a 15-minute talk by the sponsor, what's the justification?”
Adds Fitzgerald: “We're constantly reminding our people to be regulation-conscious. Don't take 30 attendees out for drinks after a reception. That is just asking for trouble!”
When NASD Comes Knocking
In addition to inspections with cause, NASD also conducts more than 2,000 routine inspections of broker/dealers every year. This means that each of the 5,500 member companies is going to open its doors to inspectors from NASD, the governing body for securities firms, on a regular basis.
“It is always uncomfortable to have a regulator in your office,” says Maribel Gerstner, assistant vice president and chief compliance officer, Allstate Distributors & ALFS Inc., Northbrook, Ill. “But with us it is less burdensome because we don't have customer accounts, so usually it's a much easier process. On the other hand, because we don't have day-to-day retail operations, it gives inspectors a chance to [scrutinize other] things — for example they can look at the kinds of rules we give to our wholesalers, or look at our marketing practices.
“Here's the thing,” she concludes. “When inspectors come into our office they can look at whatever they want, including all of Laurie's [AllstateManager Laurie Fitzgerald] meetings records. That's why she needs to make sure her records are as complete and comprehensive as possible.”