S6:E9 | FINRA Forward and Some New Rulemaking | Compliance in Context

[Music] Hello and welcome to the Securities Compliance podcast presented by the National Society of Compliance Professionals. What is our mission to help you put compliance and context? I'm your host Patrick Kase, partner at the CalPhe Law Fund. On today's show, we discussed the FINRA Forward initiative. In review, some of the recent FINRA RU making activity in areas like outside business activities, personal securities transactions, gifting gratuities, and performance advertising. In our headline section, the DOL reinstates the prior fiduciary standard under RISSA and Senator Warn who questions the SEC chair on alleged political interference and enforcement, and finally, we wrap up today's show with another installment of Outtakes, where a recent lawsuit, followed by a former client against an RIA, raises important considerations around appropriate disclosures and applicable standards of care. Moving into our headline section, late last month, the U.S. Department of Labor restored its five parts test for determining fiduciary status under RISSA, implementing federal court decisions that had vacated the DOL's 2024 retirement security rule. Following the DOL's 2024 adoption of the retirement security rule, insurance and financial industry groups had challenged the rule in federal court pretty hard. Ultimately, the 2024 retirement security rule was vacated by multiple federal courts. The DOL adopted a final restoring the prior "five parts test" for determining fiduciary status under RISSA. Under that five part test, a financial professional is treated as an investment advice fiduciary only in narrower circumstances, such as when the professional provides individualized advice on a regular basis, pursuant to a mutual understanding, that the advice will serve as a primary basis for investment decisions. The DOL also addressed PTE 2020-02 issued in December 2020, which applies only where fiduciary status has already been established and allows investment advice fiduciaries to receive otherwise prohibited compensation if certain conditions are met. The DOL's new federal rule reflects court decisions vacating the DOL's 2024 amendments to PTE 2020-02 and restores the exemption as originally issued in 2020. In addition, following court decisions vacating portions of the preamble guidance, particularly regarding when roll-over advice can trigger a fiduciary status under that five part test, the DOL concluded that the affected guidance could not be meaningfully separated from the rest of the preamble. Therefore, the DOL stated that the entire preamble should no longer be treated as reliable guidance while confirming that the operative terms of PTE 2020-02 remain fully in effect and republishing the exemptions text as originally issued. Moving to our next headline, Senate Banking Committee ranking member Elizabeth Warren recently pressed the SEC chair Paul Atkins to address allegations of political interference in enforcement matters before the agency. In a letter to the SEC chair, Senator Warren said that the sudden departure of enforcement director Judge Margaret Ryan reportedly, over some classes about pursuing the president's financial backers, raises concerns about the SEC's ability to protect investors and market integrity. She alleged that Mr. Atkins and other Republican appointees had resisted aggressive fraud enforcement, including bypassing staff to negotiate with Elon Musk, a Trump donor, informer advisor, and limited cases involving Justin Sun, a backer of a Trump family venture. She further claimed that the SEC dropped or declined cases involving politically connected individuals reinforcing a broader pattern of leniency. She also cited a roughly 20% staff reduction as undermining the agency's enforcement capacity and criticized the SEC's refusal to release the fiscal year 2025 enforcement data arguing that this lack of transparency obscures a decline in enforcement activity. Senator Warren went on to request detailed information regarding specific reasons for Judge Ryan's departure, interlink communications between Ryan and the commission, communications between the commission and attorneys for Mr. Musk regarding his alleged securities violations, communications between the commission and attorneys for Mr. Sun, communications between SEC employees in the White House concerning Judge Ryan, Mr. Musk, Mr. Sun, among other general enforcement matters. How the agency's workforce reduction initiatives and leadership instability will affect the SEC's ability to fulfill its statutory responsibilities and finally the release of the delayed fiscal year 25 enforcement data. She also asked Chair Ackens to respond to her increase by April 13, 2026. As of the taping of this show in mid September, Chair Ackens had yet to formally respond to any of the requested items from Senator Warren, and especially thanks to Norton Rose Fulbright and the Regatorial Intelligence Blog for providing much of the content for these summers. As we move into the interview section of today's show, we get to welcome back to the compliance and context podcast. One of our favorite guests, Mr. Ed Wegener, to help lead us through a flurry of activity that we have seen from Fendra on the rulemaking and rule proposal front. I think really in a way that's across the board, pretty positive developments from Fendra in some key areas that have been infecting some of the member firms over quite some time. We're thrilled to bring Ed back in. Thank you so much for joining the show as we get started or maybe before we dive into the topic proper. Would love just a quick background from you on you and your practice. Sure. Well, thanks for having me back Patrick. I really appreciate the invitation and so I'm Ed Wegener and I am the head of the governance risk and compliance practice at CRC Oyster. We are a consulting firm that serves firms in the financial services industry and the practice that I lead focuses on compliance and regulatory matters. I joined CRC Oyster in July of 2020. Prior to that, I spent most of my career at Fendra in the Chicago district office starting out as an examiner. And when I left in 2020, I was a Midwest regional director and so I ran the regulatory program school of both the Chicago and Kansas City district offices. So it was an exciting place to work and it's also exciting to see what they're doing currently. Yeah, no, no, for sure. And we're definitely going to be tapping into that experience here very much and just to get some of your thoughts on, you know, again, kind of overall approaches, right that we start to see shake out here in some of these different group proposals. And so maybe again, just to kind of help kick things off and for our listeners to get a sense of the topic at hand, I would really be interested. There's been this big kind of, you know, announcement and other related statements from Fendra about Fendra forward, right. And kind of major initiative that's being there really engaged in. And so I guess just from your side and getting a little bit of context from you, what do you, you know, like what what what is Fendra forward? What does Fendra hope to achieve with its Fendra forward initiative. Sure. And while Fendra forward is a new initiative, I don't think this type of assessment is new to Fendra over the last several years, they've continued to look for opportunities to reassess the rules, take a look at their processes and try to find ways to be more supportive of their members compliance efforts. As an example, when Robert Cook first started with Fendra, one of the first things that he had done is to do a listening tour. I mean, went out and listened to the issues and concerns of the membership and other stakeholders. And that led to the Fendra 360 initiative. And that was a large comprehensive review of Fendra's programs and the rules at that time. And then in the beginning of 2025, Fendra announced the Fendra forward initiative, which is kind of a continuation of those efforts. There's really three primary objectives that they've announced in terms of what they're looking to do. But there's a lot that comes under that. And we've seen a lot of activity here. So that the three primary areas are modernizing the rules, which is always a good thing. Empowering compliance departments and they talk about providing enhanced guidance, providing tools and analytics to help compliance departments and also engaging in more dialogue and having a greater engagement with compliance departments. We've seen that and we're both with NSCP. We've seen them interacting with us in much greater level now and getting our input. The third area is focusing on some of the shared risks that they have regulators in the industry have around fraud and cyber security. So those are the primary objectives of Finra Fowler. forward and like I said, we've over the last year, we've seen a lot of activity in this face. Yeah, it's a great point. I'm glad you mentioned it. Obviously, it's super important for us to dive into kind of the Finra forward topic in the specific initiative that's being referenced when they use that term or phrase of art, right? But this idea that Finra is taking a holistic view, you know, look at its rules at the way it engages members at the way it kind of interacts with the broader industry. These are things that it's been doing for quite some time and this is a further, you know, this is further indicative of that. But obviously, by actually going through and doing that exercise, you know, it can result in some really meaningful results and hopefully some positive changes. No, I completely agree. And one of the things, you know, when we get into more detail about, you know, some of the efforts in this space, it's clear that, you know, I'm sure that you know, I'm sure that, you know, things don't stay the same. You know, things change, the way we do business, technology, all of that change is, and it's important for the rules to keep up with that as well as how regulators enforce those rules. And so, you know, from time to time, it's really important to take a look and say, you know, what's changed and do we need to realign our rules around those changes? Mm-hmm. Mm-hmm. Yeah, so I guess as you're thinking about, and we're digging into some of the broader parts of the FINRA Forward Initiative and some of the goals from FINRA related to that, you know, what have we started to see to date, right, with regard to some of those proposals? What are some of the areas that you've seen them really digging on with regard to, you know, some of that additional or newer guidance and some of the other kind of proposals that they're really taking a look at? Yeah, well, I mean, and this is, I mean, it's sort of a slow process because they have to get a lot of input, you know, they have to file proposals with the SEC, and then there's another round of getting input. And there's a number of stakeholders that are involved in these things. But that all said, there has been a lot of that activity over the last year. We've seen a number of will proposals filed as well as we've seen a lot of requests or input from the membership and from other stakeholders. So in terms of major rule changes, there's a number of them, but I think some of the ones that are most impactful for the audience and we'll get into these in more detail. There's a new rule proposal related to outside business activities. There's proposed amendments around corporate financing rule and rules related to private placements. One of the winner's goals is to, you know, help provide opportunities for greater capital formation. And so these rules are really helped to streamline that process while making sure that they're still enforcing their core mandates of investor protection. Of course. And there's a proposal that allows more flexibility in terms of performance reporting with respect to their advertising rule. And this is what they've heard from members to try to make sure that there was alignment between the Finra's advertising rule and the SEC's marketing rule. And then recently in Finra received approval from the SEC on their proposal to update their rules related to gifted work to it is. I was on a area that they were receiving a lot of feedback on. But in addition to the rule proposals and rule changes, there have been some other key initiatives that have kicked off. One thing is that Finra's made some internal changes to their organizational structure. One of the things that they wanted to do is to better coordinate their efforts around some of the functional areas like examinations and market surveillance and enforcement. So they've done some consolidation in terms of their organizational structure. They've also announced that they're looking to provide more tools and data to firms and compliance departments to help their programs. And so that continues to develop. But I've seen them announce some changes to things like report cards to not only provide more data within those report cards, but also to make them more interactive and customizable to the firms. They're also engaging members, like I mentioned before, on a number of important topics. So one area that I think is really important and I think we'll get into a little bit more details just seeking more information about how Finra defines and regulates work locations. Given how things are done now, everything is much more tech enabled and there's remote work locations, the way the rules are structured currently really don't align to how work is actually being conducted these days. So they're seeking more information to help them determine how to better align the rules with the realities of how work is done these days. Yeah, yeah, that is super, super helpful background and a couple of comments and would certainly welcome your thoughts on these items as well. But I know just speaking anecdotally and having some direct experience with Finra on some of those items that you talked about were there, helping to better facilitate innovation and capital raising and corporate formation and corporate financing related items. I have seen really strong direct collaboration from Finra with the industry on those matters in a way that I think is super meaningful and actually does absolutely back up and stand behind that broader messaging that they are trying to do things in order to help streamline certain types of activities related to kind of corporate financing and again capital raising and facilitating those types of arrangements and really putting together the proper kind of you know internal controls and plumbing and stuff on their side to help again make things a little bit easier for those external parties that are looking to engage with those Finra units to help facilitate some of that. I think that's been really well, well received. Another item that I'd comment on specifically that you mentioned is and I'm really glad to hear that they're seeking feedback in this area is in the area of kind of supervision right and kind of monitoring and branch office locations and how those areas are defined and the types of activities that are being conducted there. I think getting you know again it seems like it was forever ago but like you know when COVID hits and the world changes and all of a sudden so many ways in which companies and member firms and their underlying employees and their underlying representatives you know interacting collaborate with each other changes in some cases overnight you know it does feel like maybe there might be some opportunities there with some of the prior rulemaking or other areas that we could dig into to better help accommodate the way that firms business and operations are essentially functioning now. Yeah and I mean if you think about it like those changes to you know how work is done and the more remote locations and things I think those things were going to happen anyways and the pandemic just you know split the switch and made that instantaneous but what you saw though is that the technology was there to make that really successful right and so the one challenge that regulators have I mean they've always had this challenge is keeping up with the pace of change but with all of these innovations and new technologies that pace of change is just so rapid that you know even with with initiatives like this it's really difficult to keep up because at the same time you also have to balance that with you know the core mandate of protecting investors and making sure that you're fighting fraud and those types of things and so it's a balancing act but it becomes really difficult when things are moving so rapidly and that's kind of the environment that we're in right now you know you mentioned that the work locations and I was thinking about this just you know I work remotely from home and I'm thinking about how I work and I really don't have any paper anymore. Something that I do is you know it is through our set phones I can probably get almost as much work done sitting in the gate of an airport waiting for a plane with my phone and everything that I can do on my phone as I do in my office with my laptop and so you know where I'm doing that work is less of an issue than what I'm doing but you know and those are the kind of things that you know as you think through what should regulators be thinking what should the rules accommodate for it's those kind of things and more. No I think that's exactly right you know and my team makes fun of me all the time because I started calling you know if I'm traveling or whatever else I've started to call things like the mobile command center right or something like that and so there's a lot there's a lot of teasing and and and rousing that goes on with that but but I will say that you're exactly right like that's that is how business is getting done these days and the idea that you know there need there is this direct need to be in a particular spot in order to conduct the majority of the work that we need to do on a day to day basis just doesn't have the same kind of priority that maybe at once it once did. I also wanted to comment though because you mentioned something else in there that I think is so critical and that I think is something that's super well received. from the industry on this front, which is the fact that FINRA is taking the time to, and again, it's talked about this kind of under empowering member compliance, but making available better data analytics and other tools to the members, back to your point, like given how fast-paced the technology and the other, as things that seem to be happening in our industry right now, both from the investment side and the business side and on the compliance side, I do think that that is so, so important, and certainly, again, something else that other member firms, you know, is very well received among member firms, because, you know, it's hard enough for folks, and I'll speak solely on behalf of, you know, legal practitioners and compliance officers that are operating in this space. Things are moving so quickly, like it can be hard for us to keep up with when you throw on top of that, the things that are happening in the broader industry or how that impacts, you know, some of the kind of related operational related aspects of that, or other, you know, with some of those other items, I just think it's super important, and I'm so glad to see that FINRA is taking that step to help make those tools and analytics available. And that's critical because we talked about all the benefits, you know, like the re-review of the rules, stream-lying, make them aligned to, you know, how we do business now. There's also challenges that come along with that, and also think about that piece of change and regulators keeping up. Well, the industry needs to keep up the firms, and you can keep up compliance departments, and you need to keep up. It was just on a call today, and we were talking with some colleagues about some of the new tools, AI-related tools that are starting to be developed and the data that you can use and how you can use that to strengthen your programs. But you know, remember, FINRA is doing the same thing, right? And so they're looking at how do they leverage data, how do they leverage technology, how do they use AI to kind of power that? And what you're going to see is not just much more efficient regulators, which is always good, but more effective regulators. And so it's important for firms to keep up, because what you don't want is regulators coming in with all this information and data and things that you don't know about, right? And so it's good, though, that FINRA is thinking about not just how do we use this data to make our programs better. How do we use these analytics to make our programs better? But it sounds like they're looking like how do we help the compliance departments leverage this information and these new technologies in order to be able to be better? Because I think there's an opportunity for a great partnership there between compliance departments and regulators, and this could be a real good way to do that. And the other thing, too, is all of these things are great. It only takes one big scandal to happen before things to just snap back into a much more reactive mode. So that's one of the things that the industry's got to keep their eye on the ball and just make sure that we're keeping things in check, because we want to continue the momentum of all of these changes and don't want to have to take a step back. Absolutely. No, that's exactly right. And I do think like indicated there, there's been, well, and you've even talked about it at the top, actually, too. I mean, you talked about, you know, like the NSCP regulatory advisory committee and all the interactions that they've had with FINRA over the last few years. And again, just getting that direct feedback from the industry on certain topics and ways in which we can continue to enhance that. It's so important. But we want to make sure that that continues and we don't want firms to engage in the kind of violent of conduct that then is ultimately going to make the regulators feel like, well, you know, we, we, we, we need to make an example of this. Or, you know, I don't think we're, we should really be able to play as nice or collaborate as much because we've got to take a much harder mortgogronian stance on certain things. Just another example of just how open they bet it and things that we've been interacting with at NSCP. And you were aware when we were doing this and we actually benefited because, you know, we both had worked together and collaborated, you know, within our organizations on some of these membership applications. And, you know, it's part of the dialogue that we had with, with FINRA, they wanted to hear, you know, what are your members seeing in terms of the membership application process? It's always a very tricky process. It can be frustrating. It's a gatekeeper process. So, it's, new firms into the industry. So they take it very seriously. But they were open to listening to, you know, what are some of the complaints? What are the things that get in the way? And it resulted in some changes that had a real material impact on the efficiency of that process and the timing of that process. And that cuts down on costs to members for both new members and firms that are going through material changes. So that kind of partnership and dialogue is can be really beneficial. And it's good to kind of do on both sides of what we can to keep that up. Yeah, yeah, that's exactly right. And the last thing I'll add and then I would love to get into maybe talking about some of the specific new rules and proposals that we've seen out there. But the other thing that engaging with the industry like in the way in which FINRA is doing it now, I think it also does so much to lend transparency to the process. Right. And when, when FINRA expresses its interests in certain things, receives feedback from the industry. And as you just described, you can see some of that meaningful change there. You know, it does so much to really demonstrate how both, you know, FINRA and the industry are adding meaningful value into these processes that where they have to collaborate together. And what the process looks like and the things that we can do to help improve it. It's just, it adds a lot of transparency and clarity into that. And I think that that's super important. So, so let's dive into some of these key changes. And you mentioned new proposed rule 3290 rule, rule 3290. Tell us a little bit about that specific group proposal. What is it looking to do and what are some of the potential benefits there? Sure. And this was a long and winding road and continues to be. But this is, it's FINRA's most recent effort to update their rules regarding outside activities. And so the goal here is to integrate and streamline two rules. Rule 3270, which deals with outside business activities. And rule 3280, which deals with private securities transactions. So they're looking to, to integrate those into, to one rule. And I think that the probably the most important change in the proposal is that it would only apply to investment-related outside activities. So, non-investment-related outside activities such as being employed or a ride-share company or working in a retail store, things like that. Those would no longer need to be reported. But on the flip side, investment-related activities like certain real estate investments, crypto-indigial assets related activities, things that are investment-related would still fall under the requirements of 3290. Much of the other requirements related to the two separate rules remain intact or just combined into the one rule. So for example, you're still required to provide written notice when you're involved in an outside activity, although now only for investment-related activities. And firms are still required to review those written notices, gather information, assess that outside activity, determine how they need to treat it. If the outside securities transaction, if there's an outside activity that is securities-related and it involves selling compensation, just like under 3280, firms would still need to record those transactions on their books and records and they need to supervise that activity as though it was their own. So the requirements, the most part under the private securities transaction rule 3280 are similar in 3290, although importantly, there's some pretty significant differences. First, the proposal would exempt activities at an affiliate of the broker dealer, which cuts down a lot of frustration and challenges that firms have because this is stuff that's already known to the firm. And so I think that was recognized by Finra. So that's under the proposal that would be exempt. And then probably the biggest issue, one of the more controversial issues is with respect to unaffiliated investment advisory activities. The way the proposal reads is that unaffiliated investment advisory activities would still need to be reported and assessed by the firm. Provided those are through a state or SEC registered investment advisor, they wouldn't necessarily require the broker dealer to supervise that activity. The broker dealer would have discretion to determine whether it would supervise it or not based on the assessments that they do, but they wouldn't be required to supervise that activity under the proposal. And that's significantly different than the current guidance that's out there. And so it's still a proposal. There are a number of stakeholders involved, including the SEC and the states. So it'll be interesting to see what ends up happening with that proposal. But I think it's well received by the industry in the membership. Yeah, no, one, obviously thank you for the really excellent breakdown of that rule proposal. I definitely agree with you that when you look at some of the potential benefits here. And Brad, I just I feel like a few of these slight tweaks to the way in which Finra's approaching a couple of months ago. items will alleviate to your comment a lot of significant headaches, right, for folks, especially for, you know, those folks that may be registered reps of broker dealers that are separately running their own independent R&A business or otherwise, or if you have like dual registrants and other folks, I just know that, you know, that's been a pretty significant pain point at times where firms have felt like the rules weren't really aligning with how they were, how the controls that were in place internally and how the kind of the setup and operations of those firms were built were not necessarily conducive to a lot of the additional requirements that had been in place. I also think again, this notion that, and you mentioned obviously there are a lot of interested stakeholders and you're going to have other regulators like the SEC that are going to weigh in, but I think in general it makes sense if I'll use by way of example the kind of unaffiliated investment advisory business again to says an example where you have the rules that are set up so that and where you have a completely separate regime in place that's helping to provide supervision and guidance and regulatory controls over that type of business. It makes sense right that then, you know, for the FINRA member firm that they don't necessarily need to have the same kind of supervision or control or other devices or tools in place to supervise that activity because in theory, certainly it's being appropriately regulated and supervised by the other regulator that isn't charged of that activity and by those other regulators that firms that are governing that activity and behavior. Right and those regulators, they understand that business and those rule sets more so than does FINRA, who is jurisdiction applies only to broker dealers. And it's tough if you're a broker dealer firm and I've heard you the fact that somebody one of your registered reps has an unaffiliated outside investment advisory activity. We were required to super that, so supervise that. So how did you supervise it? What rules were you supposed to apply to it? Do you have the expertise to be able to supervise investment advisory activity? So it caused a lot of questions and challenges and grain assets that hopefully if the proposal gets adopted, it will clear up. Well, in a very similar vein to that, I know another rule, and you mentioned this at the top of your remarks earlier today, which is the new rule related to gifts and gratuities. And I know just speaking anecdotally, that this has been another area that at least for some firms has been a pain point for certain firms and again, so much of that can also be influenced by a number of other factors, right? Like they can, you know, what types of services are you providing? What are your typical clientele and so much of that can also weigh in on how painful or, you know, what types of interruptions this, the prior rules what would have had. But if you wouldn't mind it, maybe give us a little bit of background on some of the key changes for rule 3220 related to kind of gifts and gratuities and, you know, maybe also weigh in on some of the potential impact or benefit here. Yeah, and so this is one that the FCC has approved. So, you know, I think Finra is going to be announcing more details in the effective date shortly. And like when all this goes into effect, but the major change here and it's a fairly big one is it's the increase of the gift limit from $100 per recipient per year to $300 per recipient per year. And that's significant. We talked about how rules have to keep up with changes. Well, one of those changes is inflation, right? And, right. And unfortunately, you know, that's a change that continues. And so, in addition to increasing the rule Finra also, the mention that they were going to continue to revisit those limits periodically so that they can take a look at and not go so long with outdated limits. There have been calls from, you know, in the comment period for a more principal-based review, but they did go with a limit, but they did increase at the 300. So, I think that's a very welcome change. But other than that, a lot of what this new rule does is it codifies earlier guidance and codifies it within the rule. So, things such as related to personal gifts, the minimis gifts, promotional items, certain charitable donations, guidance related to that is now codified within the rule. But importantly, two, one of the things that the new rule does is it clarifies the scope. And I think, and this might be surprising to some people, but it clarifies the scope that the rule aid us in apply to gifts that you make to employees of the broker dealer, which I think people may have known or it seems to make sense. But also, the rule does not apply to give me to retail customers. And I think that there may have been some confusion from people that, you know, that the gift rule applied to retail customers. The rule clarifies that it doesn't. That being said, firms can have more stringent requirements, but it does give them flexibility. So, because the rule has been approved, what I would be doing at firm right now is assessing the policies and procedures and make sure that they're updated to reflect the changes, making sure that monitoring systems that you have in place that are meant to look for gift limits, that those are updated. And then importantly, making sure that you're training your people on the new policies, on the new limits. And because it's tough, it's important to focus on making sure you have systems that people aren't circumventing those requirements. But oftentimes, to one of the things that Finneur mentioned that they see is that people might misclassify gifts and entertainment. Where entertainment is more principles-based, gifts have a hard and fast limit. So it's important to know the distinction between those. So clarifying that in your policies and procedures, but then also making sure that you're training impacted employees on those differences will be important. >> Yeah, again, really, really helpful background and a couple of things to add to that. I mean, one of the things that I love about this kind of- that some of the key changes for rule 3220 is it just seems to- it does a nice job of like to your point for some of those areas that member firms may have wanted to get a little bit of direct clarity right on, like, you know, personal gifts related to weddings or bereavement or other stuff like that, some of those diminimous items. If there's charitable donations, right, related to disasters, like a lot of those things, it was really nice that Finneur could provide some of that direct guidance and help clarify those items. Because I do think that- that in and of itself helped alleviate, you know, some of the pain points there. But what I also really like about it and obviously look in an area like gifts and gratuities, one of the things that we're really, really focused on there is of course this notion that we want to try to, you know, identify, mitigate, you know, remediate some of these conflicts of interest, right, that can result. And like what then that leads to that obviously could result in other potential violent of conduct down the road, not only does this rule help clarify- or I should say, like, codify some of the existing guidance and ad been out there. But then by clarifying the scope and indicating that these, you know, does not apply to gifts to employees and to retail customers or, you know, it doesn't necessarily prohibit other firms who just because of their- the way their business or operations are set up from imposing more stringent related guidelines, right, in those areas. That's just- that's really, really helpful because it it again helps give better, more clear, bright line rules around. Here are the types of conflicts of interest that we know you as a firm are working to identify and mitigate and remediate and hear some really good kind of guard rails on where you can make sure that you continue to engage in your normal firm, business and operations, do all the things you need to do, but not run a foul of any of the specific guidance for Fendra? Yeah, absolutely. I mean, I think just focusing on where the conflicts are, right, and where the conflicts aren't, right, and then being clear in terms of, you know, those things are exempt. These are the things that you need to report in here and hope firms in their efforts to mitigate those conflicts. Absolutely. Yeah. Do you think are there any areas or again, for our compliance, you know, officer brothers and sisters that are out there that are going to be now leading the charge, the tip of the spear inside their firms and how to incorporate some of the items related to 3220. Are there any key considerations, right, that you think they should have top of mind as they look to incorporate some of the these key changes from 3220 into their compliance programs? Yeah. Well, I think making sure that all the updates are made, making sure that you're communicating the changes to the impacted staff, making sure that you're training the impacted staff and their supervisors and the people responsible for carrying out compliance on the changes, making sure that you have the right systems in place to be able to monitor for this. Those are all really important things, but again, I think key to something like this because this is very much a behavioral thing. It's making sure that the training is there. And the challenge that I've seen in training on something like this is these things come up in a lot of different circumstances with a lot of different context around it. So one of the most effective things that I've seen when people have trained on this, and at the NSCP conference they had a lab where they walked through this, and I thought it was really well done, is to do scenario-based training and to throw off different situations, and say, you know, if this situation happens, how would you handle it? And go through it, just like kind of it puts all this stuff into real-world context. And I think answers a lot of questions that people might have because when people are making these decisions real-time, it's often difficult to have access to that guidance and stuff. And so by training people, hey, these are the situations that might happen. Here are the things you need to think about. And then also having escalation paths where people have questions that they can get to the right people and be able to answer those questions. So they can make sure that they do things right on the front end, as opposed to having to find issues on the back end. Yeah, that makes complete sense. And, you know, I completely agree that having these types of situations in place and doing the proper training that firms can do is really going to. It's always such a good preventative measure that you can take, but especially here where there are, you know, a couple changes, right, that have occurred in some clarity and complication that's occurred, good to make sure that all employees are up to speed on that. One other final area that I think would be certainly for our friends over in the marketing and advertising departments at our firm that might need a little bit of additional training and education on the compliance side is with regard to performance advertising. And I know you mentioned, you know, there had been some push in the industry over the last few years to help try to reconcile certain parts of what the federal rules around advertising and communications to the public and other stuff, with obviously that on the investment advisor side, we an SEC marketing rule and other elements of that, that tended to be more principles based in approach and how that had been helpful, giving firms some flexibility to tailor policies and procedures and other types of, you know, elements in their marketing and advertising development in a way that was still allowing for dynamic, you know, content to go out, but in a way that was going to still be compliant with federal securities laws. And so, you know, what, I know you mentioned earlier that there's also been some rulemaking proposed in this area. What are some of the changes that have been proposed for advertising? Right. So, and the major changes really around aligning around one of those differences and FINRAs, initially, the rule prohibited making performance projections, which was different than the current marketing rule. And so, the proposal would create a narrowly tailored exception from that prohibition and would allow performance projections to be made, provided certain conditions for them at one of which was that in order to do so, firms would have to have procedures that reasonably designed to ensure that the projections are relevant to the financial situation and investment objectives of the intended audience. And so, that would likely, it would allow you to be able to make those types of projections, but it would also end discouraging and potentially not permit projections that would be made to mass audiences or in general circulation. So, when you're making those projections, they have to be relevant to the audience. So, you have to know who that audience is and make sure that they're relevant to that particular audience. Firms also need to make sure that they had a reasonable basis to believe that the criteria that they used and the assumptions that are made in calculating the projections or the target returns are reasonable and that they maintain records in terms of how those calculations were made and what assumptions were made in creating those calculations. In addition, firms would have to disclose to the audience information that would help them understand what the criteria were used and what assumptions were made, making sure that they disclose whether the performance that's reported is net evict expenses or gross of expenses and providing information about the risks and limitations of using such projections. So, again, it allows more flexibility to be able to do this and align more with the marketing role of the SEC, but also has some conditions that need to be met in order to be able to do so. One important difference between this proposal and earlier proposals is the earlier proposals. It prohibited making such projections to retail customers. Now, this allows those projections to be made to retail customers provided all of those conditions are met. So, that provides a lot more flexibility in being able to use these. And so, I think that's probably the biggest change, but I think it's really important. So, this is going to be one, two, that it's going to be important for firms to really understand the exception, understand those conditions and make sure that they have good policies and procedures around this, have a way to document all of the determinations they made and all of the criteria used and making sure that those disclosures are made. Yeah, no, it's a great summary. And I completely agree and I really like the way that the Finder has framed this. You see this so much in, you know, the SEC marketing rule is an area that, you know, I think for a lot of firms that actually do show performance in their advertising and marketing materials. They've been grappling with this question for quite some time to how can we show that performance, but do so in a way that's going to be compliant where, again, especially with things like hypothetical performance and again, projection and targeted returns, you can't just go like plain like post that on your website for anybody that go take a look at, right? Like they, the default there is you have to know that the intended audience can understand this content and hypothetical performance returns is an area that's just always going to be met with a lot more scrutiny because it is more difficult to understand. And, you know, hindsight is 2020 and we are going back to demonstrate something that never really occurred and it can be hard for someone who may not be as sophisticated in reviewing that information to understand exactly what it means and what it's actually trying to say. So I really like the fact that Finder is saying, hey, look, we recognize that with some potential investors, including retail, this is really important for firms in that you can have a really good system in place to be able to share that information, be able to provide, you know, those appropriate content, a meaningful content in a way that's going to be instructive for that investor to potentially consider that investment or whatever it is it's being advertised. But do so in a way that is going to be compliant with the rules and that's going to have the right, you know, disclosures around it. And it's a great benefit for the industry, but like a lot of these things, you know, the burden of all of those things is going to fall on compliance and on the compliance department. So it's really important that, you know, compliance has the resources that they need to be able to do this that, you know, they have the people that have the training in order to be able to do this. And so it's incumbent the industry and the business to make sure that they have the resources in place to be able to make sure that this is done effectively. And that's really to bolster the compliance departments. Yeah, yeah. Here, here, rocket, rocket supplies from all of our wonderful listeners to the show who are going to are going to definitely go back and hit pause at that part and then the U.D. is articulated and play it for their their bosses here, here later. And you know, after listening, but this has been incredibly helpful. And thank you so much for walking us through all these different rule changes and rule proposals pushed out. And of course, the, you know, kind of fendera forward, you know, related initiative and getting some additional context there. Super helpful. Obviously, I think the industry is would love to see that momentum continue. I can tell you, anecdotally, again, just with a number of, you know, firms that we help support just the, you know, overwhelmingly positive reaction to a lot of these items. And so we'll continue to see how it shakes out. But thank you so much for coming on the show today to share your insights. Well, happy to be here and I really hope it's helpful. Yeah, absolutely. One quick item though. Of course, we'd love to say here, no good deed goes on punnison. I do, I do have you. So, you know, we just got done doing another podcast with Brian Rubin and Ellen Connell over at Everett Shedts' Sutherland and getting their picks for the NCAA tournament. So I'll say to you, who's your horse? Who do you expect to go all the way in win-mortz madness? Well, I'm in Chicago. Yeah. So, um, so I definitely haven't picked, but I wanted to say, clean this is just I am awful picking the brackets so I'll tell you who I'm gonna pick but you take that with the grain of salt but I'm gonna go with the YLI. Okay all right here big 10 in your in Chicago makes sense yeah represent the Midwest very good well we will of course judge you very much based on based on your picks but now thank you so much for being so generous with your time coming on the show today and you know as always looking forward to having you back on the show here at some point down the road. Thanks Patrick take care. The final part of today's show pleases another segment without takes as a group reminder for some of our new listeners if compliance were a TV show think of this as the bloopers real where we look at entertaining sometimes humorous and often unsettling activities carry out a financial services firms it hopefully provide us all with a roadmap of what not to do when facing a similar situation or trying to avoid a similar compliance breakdown inside our respective firms essentially leave these activities on the cutting room floor and outside your compliance program in an article written by Tez Romero on investmentnews.com and SEC registered investment advisor allegedly assured a client that a 10 million dollar bond investment was quote guaranteed before the underlying project collapse entirely. This investment advisor and two of its representatives are facing a federal lawsuit over allegations they steer a client into a speculative municipal bond that became worthless within a year. These suit takes place in the US District Court for the District of Puerto Rico which accuses the firm and its representatives of securities fraud breach of fiduciary duty and the elegance. The case centers around this 10 million dollar investment in subordinate municipal revenue bonds tied to a biosolid specification facility in New Jersey. According to the court filings the advisory relationship began in late December 2024 when an investment agreement was entered into between the complainant and the firm. The agreement stated that the advisor would treat the client with a quote for the shared standard of care obviously placing the client's interest at the forefront ahead of the interest of any individual advisor representative or the firm. Despite the client's documented moderate risk tolerance and relatively short term growth objective the firm allegedly recommended the concentrated position in bonds financing a waste processing plant. A project described in the filings as a first of its kind prototype with significant construction technology and operational risks. The bonds carried a 12.5% coupon rate which a lot of sugar argues reflected severe financial distress rather than an attractive yield opportunity and the court documents also note that the project had already required multiple rounds of financing with coupon rates climbing from approximately 6.75% in 2019 to 8.5% in 2021 before reaching 12.5% in 2023 and 2024. The most striking allegations though involved certain statements made during a February 25 quarterly review call where the client was told there was quote no no risk of loss of money and quote from quote a realistic standpoint in further characterizing investment as guaranteed because a quote multi billion dollar family office and quotes to bind it. The representative went on to describe the investment as going screamingly well and claimed that quote everyone in America would have to lose their money for that investment not to be guaranteed and quote. Unfortunately as you might expect those assurances allegedly proven founded in in October 2025 the trustee for the senior bonds declared events of default and accelerated payment. Senior bond orders received roughly 41 dollars and 50 cents per $1,000 of principal only a mere fraction of their original investment. For subordinated bond holders the situation got even worse and in December 2025 the firm announced it was idling operations and terminating substantially all employees after failing to attract new investors the filing described as investment as effectively now a complete loss. I think importantly here the loss superies is questions about compliance practices and certainly disclosures being made between portfolio managers or investment professionals and clients of the firm or investors and funds where the fund is managing poor investment vehicles and it's always important to make sure too that firms are doing compliance assessing and checking where it comes to for wealth managers and looking at where you have concentrated positions are those positions consistent with the overall risk tolerance or investment profile or investment objectives of those clients. These case seeks compensatory damages discoursement of advisory fees and other relief and that will do it for today's show. I'd like to thank our sponsors, Calv. and the National Society of Compliance Professionals and extend a big thank you to our guest Ed Wagener for sharing his thoughts and expertise on the recent Finder rule proposals. Please don't ask again next time on the Securities Compliance podcast where we help you put compliance in context. Please try to start on LinkedIn you can search for compliance and context podcasts or on X using the handle at CompliancePod. You can like us and subscribe to us on Apple podcasts or wherever you find your favorite podcasts. We're going to compliance and contextpodcast.com to listen and learn more.