One slip in the contacts and that automatic signature offering a free 30 minute coaching session could cost you in compliance. So how can you diversify your income and stay compliant? Your best bet may be to reach out to an attorney before starting any new venture.
I recently read a Facebook post about a real estate business woman who bragged about buying a business and now having six streams of income. To others, it may have seemed like the American Dream: dollars dancing like sugar plum fairies in your head. To a lawyer, I saw something slightly different: nightmarish compliance scenarios like mice in the nutcracker scattering everywhere. And it turns out, we lawyers have good reason to warn clients about the troubles of diversifying your income streams.
It seems like every pop-up business success story wants to talk about the importance of diversifying your income streams. It’s all the rage in the real estate business. And let’s be clear, diversification is a necessity in financial advice as a fiduciary. Advice lately seems to argue for having as many streams of income as possible and to ensure that many of those streams are passive ones. Why work one job when you could also consult, have real estate holdings, earn income from investments as well as from patents and royalties. How is it possible to wear all of these hats at once? Well, cross-marketing seems like a possibility. That is, using the marketing contacts you currently have to sell or boost your other streams of income. However, in practice, it calls for a little more caution to manage this potential catastrophe of conflicts of interest.
Take one of the Securities Exchange Commission’s (SEC) most recent compliance rulings for example. In Meyers Associates, L.P. nka Windsor Street Capital, LP (CRD #34171, New York, New York), Bruce Meyers (CRD #1045447, New York, New York), the SEC fined the firm and Bruce Meyers $700,000 for failure to meet communications requirements. As FINRA reported the SEC sustained the FINRA National Adjudicatory Council’s findings that “Meyers used his firm email address to send emails concerning a biotechnology company he co-founded to persons identified as being involved with, or having invested in, biotechnology companies. The firm and Bruce Meyers collectively owned more than 60 percent of the company’s common stock.” While the firm made a host of serious errors, including false and misleading claims about the business as well as baseless projections, the emails sent to potential investors (persons who had invested in biotech previously or were involved in biotech firms) from Meyer’s account. As FINRA noted, “In these emails, the domain name of Bruce Meyers’s email address was the only indication of his association with the firm. The emails did not disclose the firm and Bruce Meyers’ ownership interest in the company or that the firm had raised approximately $13 million in capital for the company and earned more than $1 million in compensation since the company’s inception.” Unsurprisingly, FINRA found that the firm failed to establish and maintain a reasonable supervisory system for the review of electronic correspondence.
While the SEC’s risk alerts on advertising in email usually relate to the bigger problems in Meyer’s Associates (e.g., the false and misleading claims as well as baseless projections), they do highlight a few other common areas of discipline. One of the four provisions noted by the SEC that advisors face in compliance issues is Advisers Act Rule 206(4)-1(a)(4) (prohibiting advertisements that offer purportedly free reports, analyses, or services).
If an advisor has multiple streams of income and offers free consulting for some related but other business (such as business coaching, life coaching or divorce coaching, to name a few) a slip could easily occur. How so? That concept of cross-marketing as boosting your business noted above. If you have multiple hats to wear, you probably need multiple email addresses from which to send correspondence. Are you certain your smartphone is always keeping those contact lists separate? Many business people follow suggestions to integrate their contacts from multiple sources and ensure they can access those sources from a smartphone. But one slip in the contacts and that automatic signature offering a free 30 minute coaching session could cost you in compliance. So how can you diversify your income and stay compliant? Your best bet may be to reach out to an attorney before starting any new venture and plan the best technology to meet your needs.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal