Financial advisors love the freedom and autonomy that come from working remotely, a trend that emerged when the pandemic first upended work life in early 2020. But as FINRA, the regulator of brokerages that also tracks independent advisors, toys with making new rules for how remote and home offices should be overseen, it's garnering pushback from corners of the industry.
The Financial Industry Regulatory Authority is giving industry officials more time to comment on its proposal to subject financial planners' home offices to less frequent internal inspections and normalize other remote-work policies that the regulator adopted early in the COVID-19 pandemic. FINRA separately is pushing ahead with a pilot program that would allow firms to conduct required inspections of their branch offices remotely, rather than in-person.
The twin proposals come as wealth managers and financial advisors struggle with now-standard questions over how much work is best done in offices and how much can be securely performed at home. Many advisory firms, especially smaller independent ones, say that the option to work remotely is essential to their recruitment of employees who might otherwise be drawn to more accommodating companies.
The regulator's proposals also come as many big Wall Street banks haul their employees back into the office. JPMorgan Chase CEO Jamie Dimon has been pushing for workers, especially deal-makers, to sit in their office chairs five days a week, following a similar requirement by Goldman Sachs.
FINRA's proposals are an attempt to normalize policies and procedures that it put in place in its early response to the pandemic. But like people in industries from consulting and law to media relations and accounting, many financial planners have come to count on their recent freedom to work from home.
John Mason, the president of financial planning firm Mason & Associates in Newport News, Virginia, said the option of remote work is especially valuable to small companies that compete with big firms for talent. Mason & Associates employs eight people, all of whom are allowed to work from home more or less as they choose. Mason said his company keeps financial data secure by using virtual private networks, encryption, multi-factor authentication and password managers.
"I do find this is necessary, especially as a small business that's continuing to broaden its horizons," Mason said. "If there is a potential employee in California or in Montana, we may want to interview them and this is one way to help make ourselves a good fit."
Work-from-home policies may be popular with independent advisors, but they aren't easy for regulators to translate into official, permanent policies. Both FINRA proposals are drawing staunch criticism from the North America Securities Administrators Associations, a group representing state financial regulators.
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FINRA is confident that technology has reached a point where certain business functions can be done just as securely in a virtual setting as in an office. NASAA disagrees.
"Underpinning the Proposals is FINRA's largely unsupported assertion that electronic monitoring has advanced sufficiently to allow industry to risk replacing in-person inspections and supervision with unspecified technological alternatives," Melanie Senter Lubin, NASAA President and Maryland Securities Commissioner, wrote in the Aug. 23 letter to the SEC.
NASAA's doubts challenge the premise that work can be done as securely at home as in a formal office.
"The risks of data loss and the challenges of data recovery are higher for remote workers," NASAA wrote in
The proposal would also set various limitations on what sorts of business could be conducted in home offices. Employees working remotely, for instance, would be prohibited from using home offices to store any records or documents that are required by FINRA or federal rules. They would also have to abide by existing rules including prohibitions on meeting with customers at a remote office, on conducting certain types of transactions at home and on using anything but the parent firm's computer system for electronic communications.
In its Aug. 23 letter to the SEC, NASAA officials took FINRA to task for neither specifying what type of technology would be used to ensure remote work is done securely nor providing data showing that the industry's pandemic-induced remote work trend has been a success. NASAA officials also questioned why FINRA needs a three-year pilot program to collect data, after having two and a half years' worth of experience with remote inspections during the pandemic.
"To grant FINRA an additional three years to gather data would in effect provide industry with over five and a half years of relief without ever providing the SEC with data that might support, or refute, the proposed rule changes," Lubin wrote in NASAA's letter on the proposals.
Unless FINRA can produce better justifications, NASAA contends, the proposals should be rejected by the SEC.
"While the pandemic forced temporary changes on all of us, it did not change the fact that certain persons are prone to misconduct, and it cannot be assumed that the manner in which firms were forced to operate during the pandemic is acceptable going forward," Lubin wrote. "The effectiveness of remote supervision must be evidence-based."
