Market Update from Envestnet

April 12, 2022

The global economy has started to slow after reaching near peak growth in the latter part of 2021 on the backs of historical levels of fiscal stimulus and a strong rebound in China. After a strong on the fourth quarter of 2021, economic activity has begun to slow more than expected early in 2022 due to rapidly accelerating inflation emanating from goods shortages due to supply chain bottlenecks, as well as a continued jump in inflation driven in part by surging commodity prices brought on by the Russia-Ukraine war…

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Bright Break: What’s Ahead with Jerry Rice

April 12, 2022

Fuel your motivation by joining a Bright Break with professional football Hall-of-Fame athlete Jerry Rice.

Over his career, Jerry Rice’s dedication, commitment, and discipline have inspired so many, and now he wants to share with you what makes him strive for excellence. Join our exclusive livestream event where Jerry Rice answers your questions and talks about remaining focused on your goals and achieving greatness.

Submit your questions in advance on the registration page. We will address as many as possible during the livestream event.

This complimentary event is presented by Brighthouse Financial®.

CLICK HERE TO RESERVE YOUR SPOT

Questions?

For more information, talk to your Brighthouse Financial wholesaler or call the Sales Desk at (855) 459-7277.

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Market Closure and Limited ESI Hours on Friday, April 15th

April 5, 2022

Please note the following closures/limited hours on Friday, April 15th (Good Friday holiday):
– All NYSE markets will be closed; check with individual Partners for their hours.
– ESI will be closing at noon.

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Removal of Higher Cost Mutual Funds from Some Flagship Select and Directions Accounts

April 5, 2022

Equity Services Financial Advisors (“EFA”) believes that it is important to provide clients with investments which are in their best interest. This means that if less expensive investments are available in their accounts, they should be offered.

EFA has identified some mutual fund share classes available in Flagship Select and Directions accounts which have higher internal fees, but are otherwise the same as other available share classes of the same fund. These fees are assessed by the mutual funds and are reflected in a fund’s “internal expenses.” Over time, higher internal expenses can lower the performance these investments.

Often, No Transaction Fee (“NTF”) mutual funds have higher internal expenses. For legacy Flagship Select and Directions accounts with ticket charges (accounts opened prior to February 15, 2021), using these more expensive funds may still make sense. However, for those accounts which use the new pricing structure and are not assessed ticket charges (accounts opened after that date, or older accounts which have since transferred), less expensive share classes are the better option.

On or around April 15, 2022, you will be unable to place orders for some NTF mutual funds, and some other funds with high internal expenses, in Flagship Select and Directions accounts with the new pricing structure.[1] Usually, a less expensive share class of the same fund will still be available for purchase. If not, you should consider using a different mutual fund which is available. Even after these changes, there will still be over 15,000 funds available to recommend to your clients. If you would like to verify whether a fund you intend to recommend to your clients is available, you can do so by clicking here and viewing the available funds list.

On or around April 29, 2022, EFA will automatically convert any existing holdings in these funds with higher fees to a different share class of the same fund because it will save the client money and improve the account’s performance. Your clients will be sent a letter informing them of these changes shortly, which will afford them the opportunity to “opt out” of the conversion if they wish. Click here for a copy of this letter.

EFA is informing you of these changes in case you attempt to recommend or rebalance to a fund which is no longer available in some Flagship Select and Directions accounts. Additionally, for Investment Advisory Representatives with clients in legacy Flagship Select and Directions accounts which are still charged ticket charges, this is an excellent opportunity to consider whether the use of NTF Funds in these accounts is still cost effective. You may wish to consider moving the account to the new pricing structure, which will charge an increased platform fee, but allows for free transactions on most investments in the account.

If you have any questions about these changes, please contact Tom Longfellow, Sandy Colvin or Mike Chiarella at 800-344-7437.

[1] If you place an order for one of these funds prior to this date, it may be flagged by ESI’s back office, and it may reach out to you if a less expensive option is available for the client.

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PMC Capital Markets Assumptions and Asset Class Portfolios Update

April 5, 2022

As a reminder, the updated Capital Markets Assumptions (CMAs) and Asset Class Portfolios (ACPs) recently went into effect on the Envestnet platform. Read more for the details.

For questions please contact your Regional Advisory Sales Team.

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Mutual Fund Switching Activity

April 5, 2022

Switching is the selling or redemption of one mutual fund with a sales charge to buy another mutual fund with a sales charge. Recommended switches may not be based on the compensation to be received by the Registered Representative (“RR”) or ESI, and the RR must have a reasonable basis for believing the switch is in the best interest of the customer.

If recommending a mutual fund switch, you must complete and submit a Mutual Funds Purchase Disclosure (“MFPD”) form (ES0539).

MUTUAL FUND PURCHASE DISCLOSURE
Switches between mutual funds that result in potential additional sales charges for the customer (whether front-end or back-end load) require that a MFPD be obtained from the customer acknowledging an understanding of the consequences of the switch. Additionally, the MFPD is required if a mutual fund is being purchased with the proceeds from the redemption of another long-term financial product (such as a variable or fixed annuity, surrender of life insurance, qualified plan proceeds, etc.).

An MFPD is not required in the following instances:

Assets in an existing account are retitled.
Intra-fund family transfers/exchanges of the same share class.
No-load/no-transaction fee transactions within a managed or wrap fee account. However, an MFPD may be required for new assets coming into such accounts, as described above.
Stocks, bonds or certificates of deposit instruments are liquidated to purchase a mutual fund.

Failure to obtain the required documentation could result in disciplinary action by the Firm. For additional information regarding this requirement, please refer to Section 14.4 (Switching) of ESI’s Written Supervisory Procedures Manual.

QUESTIONS

If you have any questions regarding the Mutual Fund Purchase Disclosure Form, please contact the ESI Suitability Team at 800-344-7437.

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Read the Most Recent Version of Compliance Alliance

April 5, 2022

The ESI Compliance Alliance is a quarterly publication that summarizes industry news and/or regulatory events that may impact our business. The Compliance Alliance focuses on providing best practices and guidance that will help your business remain compliant with industry regulations. This publication is created by ESI Compliance with the intention of supplementing the ESI Written Supervisory Procedures.

ESI Compliance is here to assist you and your business in meeting regulatory requirements. We strive to deliver seamless service and partner with you to ensure ESI is meeting regulatory requirements. ESI Compliance can be contacted at 800-344-7437.

WE PROTECT OUR STAKEHOLDERS THROUGH A SOLUTIONER-DRIVEN MINDSET THAT PRIORITIZES INNOVATION AS A COMPETITIVE
ADVANTAGE.

Survey and Branch Exam Feedback

Thank you for sharing your feedback in 2021! We are listening and taking action. During the course of the 2021 FOSJ branch exam program, ESI Branch Examiners gathered feedback from field agencies. The feedback was collected, tracked, and shared with senior leadership each quarter. Additionally, feedback received through the recent ESI survey was reviewed and shared. Your feedback helped us identify both opportunities and challenges, each of which we will focus on in 2022. We hope to continue to collect and share your feedback in 2022.

Ease of Doing Business

Continuing Education – Making this requirement straight forward
Securities CE: When do I have to do what?
In the world of insurance and securities, there are many different types of trainings and continuing education that both insurance agents and registered representatives must complete on a regular basis. If you’re lucky enough to be an insurance agent and a registered representative, then you’re lucky enough to have to do all of them! The following information is to help break down some of the differences in the securities portion and to help clarify why you have to do what, and when. Click here for helpful guidance.

2021 Branch Exam Results
In 2021 a total of 229 field examinations were conducted by Compliance as well as Field Supervisors. These examinations identified a variety of exam observations and several trends were identified. Click here to review 2021 exam trends as well as helpful tips to remain compliant.

Recent Field Notifications

Field Notice 2021-32 Confidentiality Agreement

Field Notice 2022-05 ESI Written Supervisory Procedures Update

Field Notice 2022-06 EFA Written Supervisory Procedures Update

Recent Regulatory Actions and Compliance Guidance

October 8, 2021 (Involving an unregistered person in activities that require registration)
An AWC was issued in which RR Jennifer Ayers was barred from association with any FINRA member in all capacities. Ayers failed to provide on-the-record testimony in relation to a FINRA investigation. The investigation stemmed from a Form U5 filed by her member firm that terminated her after allegations that she involved an unregistered person in activities that require registration. Full Regulatory Action

Compliance Guidance
Persons with access to ESI books and records or customer funds/securities must be fingerprinted and undergo a background check. Anyone who has access to office records, systems, equipment, or mail must be fingerprinted because they have access to ESI books and records, monies, or securities. This includes administrative or mail room staff, receptionists, temporary employees, and summer or short-term interns. ESI books and records include, but are not limited to: office records, client files, product/account applications, transaction blotters/activity logs, customer checks, stock certificates, agency systems or equipment, correspondence, advertising, or mail.

October 6, 2021 (Outside Business Activities)
An AWC was issued in which RR William Fochi Jr. was fined $10,000 and suspended from association with any FINRA member for four months. Fochi consented to the sanctions and to the entry of findings that he engaged in an OBA without disclosing or providing prior written notice to his member Firm. Full Regulatory Action

Compliance Guidance
An outside business activity (“OBA”) is defined by FINRA as being an employee, independent contractor, sole proprietor, officer, director or partner of another person, or being compensated, or having the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm. Compensation is not just commissions or salary. It may include stock, products, or services provided in lieu of cash. For additional guidance please view the OBA Field Notification.

Compliance Corner

Meet Your Compliance Team:
Kyla Ward, Compliance Analyst
Kyla Ward joined ESI Compliance as a Compliance Analyst in August 2021. She works within the Electronic Communications team and comes to ESI from LPL Financial, where her last position held was Associate Service Consultant within the Compliance and Registration team. Prior to that she worked on a Specialized Client Services Team assisting advisors and their clients with the Firm’s remediations.

Kyla holds FINRA Series 7 and 24 registrations. Kyla aims to utilize her experience to partner with you and become a long-term resource for your business.

Compliance Directory
ESI Compliance is here to partner with you. Please let us know if we can assist you and your business in meeting regulatory requirements. Click here for the Compliance Directory.

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