Cash & Non-Cash Compensation

In an effort to limit the possible conflicts of interest that may arise in connection with the sale and distribution of securities products, FINRA has regulations in place governing what Registered Representatives (“RRs”) can and cannot do relating to gifts and compensation. ESI has adopted policies and procedures to comply with FINRA regulations. Below is a reminder of the Firm’s cash/non-cash compensation policies.

MARKETING SUPPORT/REIMBURSEMENT

Direct and indirect marketing reimbursements are permissible in certain circumstances and require prior approval from your supervisor and review by Compliance.

• Direct marketing reimbursements are when the product sponsor cuts a check to reimburse expenses you incurred and paid.
• Indirect marketing reimbursements include any form of payment (e.g. cash, credit card, check, etc.) from a product sponsor directly to a vendor (such as a conference room rental) for expenses incurred.

Please remember that for all marketing reimbursements:

• A representative of the product sponsor must attend any event.
• No direct cash reimbursement from a product sponsor to a RR is permitted.
• Reimbursements may not exceed $100 per person, with a $2,000 limit per product sponsor per calendar year.  
• It is permissible to have reimbursements from multiple product sponsors for one event.
• Registered Investment Adviser sponsors may not provide marketing support or pay expenses.

If a product sponsor wants to reimburse you for expenses that you already paid:

• After you incur the expense, the product sponsor must send the check to ESI.
• Complete the Marketing Support/Reimbursement Form with copies of receipts and other relevant info requested on the Form, submit to your supervisor for approval, who will forward to Compliance via ESIElectronicCommunications@nationallife.com.
• If approved, ESI will cash the check from the product sponsor and send you a reimbursement check from ESI.

If a product sponsor wants to pay your expenses directly to a vendor:

• The Marketing Support/Reimbursement Form must be submitted to your supervisor and Compliance before allowing the product sponsor to pay to ensure the payment is appropriate.   
• If approved, you may notify the product sponsor it is acceptable to make the payment.
• Compliance will follow up after the payment to obtain receipts and other documentation. 

Gifts and Entertainment

For information on gifts, please review Field Notice 2021-35: Gift Reporting in StarCompliance.

For entertainment, you may invite clients to entertainment or accept entertainment from a product sponsor provided that:

• It is not frequent, lavish or excessive as to raise a suggestion of unethical conduct.
  • The entertainment you are accepting is not based on meeting a sales target.
  • You comply with state insurance department anti-rebating rules with regard to client entertainment (which may be stricter than the $100 FINRA gift limit).
  • You attend the entertainment event with the client or product sponsor. If you do not attend, it is considered a gift and subject to the $100 gift limit.
• Items given/received before, during, or after the entertainment are considered gifts and must be reported as gifts in StarCompliance. 
• Anticipated entertainment expenses and/or marketing materials associated with an event must be submitted for prior approval to the Advertising Guidance Team (“AGT”). 

Reporting and approval is not required unless the entertainment given or received:

• Involves airfare and/or an overnight stay.
• Is estimated over $300 per individual. This includes entertainment given (per individual for entertainment you provide) and entertainment received (per product sponsor providing you entertainment.
• Could be potentially construed as frequent, lavish, or excessive.

As with gifts, reporting of entertainment is completed using StarCompliance (“Star”):

• Go to nationallife.starcompliance.com to access Star.
• Once in Star, click one of the below buttons to report entertainment.
• For assistance on reporting, please click one of the below guides which are also available on the Agent Portal under ESI Compliance:
• INSTRUCTIONS – Entertainment Given
• INSTRUCTIONS – Entertainment Received

Educational Meetings/Trainings

Prior approval is required to attend a product sponsor’s meeting if there is any type of compensation provided (e.g. free meal, CE credits, hotel, airfare, etc.). Approval is required regardless of whether it is a day meeting or overnight trip.

To be approved:

• Attendance may not be based on achieving a targeted sales goal,
• The location must be appropriate to the product sponsor or ESI,
• Guest expenses may not be paid, and
• The agenda must be educational in nature.

To obtain approval to attend a product sponsor’s meeting: 

• Complete the Training Attendee Certification Form prior to attendance and submitto your supervisor for approval and then to Compliance via ESIElectronicCommunications@nationallife.com. 
• Normally, ESI should have already been contacted by the product sponsor requesting approval to invite you.  If we were not, Compliance will reach out to the product sponsor for additional information about the meeting including the agenda, location, and expenses.
• If the meeting is deemed to be appropriate, Compliance will provide approval to attend.
• reimbursements from the product sponsor for travel expenses or mileage must come through ESI and may not be paid directly to you.

Day Meetings

If you have an office meeting, where a product offeror comes in to do a presentation and provides any type of financial support (i.e. pays for meal or meeting location), complete Day Meetings Offeror Certification after the meeting and send to ESI Compliance (ESIElectronicCommunications@nationallife.com). Please be sure to have the presenter sign the form. As a reminder, reimbursements from Registered Investment Advisers (RIAs) are not permitted.

Raffles

State laws vary regarding raffles. They may be prohibited or limited in prize values.  Therefore, if you are hosting a raffle, please be aware of the laws in the state where the raffle is being held.

If you decide to conduct a raffle with the public, please be aware that:

• The recipient of the prize must be selected at random.
• The prize must be awarded without any requirements (i.e. prize cannot be based on scheduling an appointment, doing a financial review, applying for life insurance, purchasing securities, etc.) in order to receive the prize.
• All materials associated with a raffle require prior approval from AGT. If the entries will be used as leads, entry forms and signage are considered marketing subject to review.

To obtain approval for a raffle with the public:

• Submit the Compliance Review Request Form along with all marketing materials associated with the raffle to the AGT via AdReview@nationallife.com.
• AGT will facilitate obtaining Compliance approval, if necessary.
• Once final approval is received from AGT, the raffle may be conducted.

Incentives

Please remember that incentives are normally approved by the AGT for one year and need to be resubmitted if being used for more than one year. For additional guidance on incentives, please review Field Notice 2020-21: Reg BI and Sales Contest/Incentive Programs and Field Notice 2021-04: Massachusetts Fiduciary Rule.

Questions

If you have any questions or concerns, please contact your Supervisor or ESI Compliance at 800-344-7437 (or ESICompliance@nationallife.com).

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Signed, Blank or Partially Completed Forms

Requesting or accepting a signed blank or partially blank form is prohibited. Signing or initialing on behalf of a customer is also prohibited. These requirements apply to both registered persons and non-registered fingerprinted persons, (i.e., administrative assistants). All forms must be fully completed before a customer signs. Any changes after the customer signs requires the customer to initial acknowledging the change.

What is a signed, blank or partially-completed form?

• Having a client sign a blank or partially completed form and you or your administrative assistant complete later.
• Having the client leave certain field blank and you or your administrative assistant complete later.
• Emailing only part of a form to a client (i.e., sending only the signature page).
• The email with only part of the form confirms that the client did not review the information or receive required disclosures about their transaction.

• Having clients pre-sign forms in case you may need them now or in the future.
• Changing/altering the information on the form after the client signs without their initials to evidence their review (including date change or error corrections).

Clients need to sign completed forms to validate the information for accuracy, ensure all disclosures have been provided, and to help ensure they are fully informed about what they are signing.

Do not use white out. If a change needs to be made to a form, cross it out. If the change is made after the client signed, ensure that the client initials next to the change.

Additional eXAMPLES

In addition to the definitions listed above, the following are detailed examples of prohibited practices around having clients sign blank or partially completed forms:

• Leaving date blank: Having the client leave the date blank and you or your administrative assistant add it later. If there is a delay in dating the paperwork, the Firm will not know when the client actually signed the paperwork. Do not instruct the client to leave the date blank.
• Checking boxes after client signs: Updating check boxes on paperwork after the client signs could change the intention from the client on the paperwork.
• Not completing PII on forms: This includes having the client not include the social security number, date or birth, etc. on a form for security purposes and you or your administrative assistant add later. 
  • If these items are included, the email will be automatically encrypted when sent and when returned by the customer. You can also place “[PRIVATE]” in the subject line to enable encryption.
  • Don’t to try to avoid triggering encryption on an email by not completing this information.
  • Using Docusign through Docupace will avoid this issue.

Consequences

There are frequent regulatory actions related to signed blank/partially completed forms. The following are real examples from FINRA disciplinary actions within the past year. In each of these instances by falsifying documents, the RRs caused their firm’s books and records to be inaccurate.

• RR was fined $25,000 and suspended for 2 years for forging the signature and initials of a customer relating to annuity surrenders. The RR also changed the date on a form so that it appears to have been signed one month prior to when it was actually signed.
• RR was fined $10,000 and suspended for 2 years for forging a customer’s initials on annuity documents. The RR added the customer’s initials without permission and added a date on the documents that was later than the date that the customer signed.
• RR was fined $5,000 and suspended for 2 months for changing information on several forms without the customers’ consent. For two customers, changes were needed to submitted forms and the RR made changes to the forms and forged the client’s initials. For another, an IRA transfer form was returned because it should have been marked as a normal IRA distribution. The RR altered the form to mark it as a normal distribution and submitted it without the customer’s initials.
• RR was fined $5,000 and suspended for 20 business days for using a pre-signed letter of authorization to effect periodic distributions from a customer’s retirement account. At least 8 times, the RR added the date to the form and submitted it to her firm.

While having clients sign blank or partially completed forms or signing/initialing on their behalf may seem like a way to expedite requirements or accommodate a client, it is not ethically sound and doing so provides no defense in a complaint that alleges the client did not sign/initial the forms, that they weren’t made aware of product features, or that important disclosures were not provided to them.

Please remember that you are responsible for the work of those non-registered fingerprinted persons who act on your behalf. Please share this field notice with all office personnel who interact with clients, so they are aware of these prohibitions as well.

ESI takes these matters seriously. If alteration of forms is suspected, an internal review is initiated and, if confirmed, may result in disciplinary action.

QUESTIONS

If you have any questions, please contact your supervisor or ESI Compliance at 800-344-7437.

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FINRA defines an outside business activity (“OBA”) 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.

OBAs REQUIRED TO BE DISCLOSED
All OBAs are required to be disclosed and approved BEFORE engaging in the activity. You must also notify your supervisor and ESI Compliance for changes or termination of an existing OBA. Common examples of OBAs that must be disclosed to ESI include, but are not limited to:

• Any outside employment not related to securities
o Including any other home-based or small business enterprises
o Including any activity where compensation is paid (e.g. Uber driver, coaching an athletic team, part-time or seasonal employment, writing/publishing a book or periodical, etc.)

• Acting as an insurance agent (including your DBA) and your insurance practice (including but not limited to fixed annuities, universal life insurance, term insurance, whole life, and fixed indexed universal life insurance)

• CPA, lawyer, tax preparer, Enrolled Agent

• Fees for referring business to someone else

• Real estate activities, such as owning a rental property, leasing or renting land, or owning/operating an Airbnb (or other equivalent arrangements).

• Serving in a fiduciary capacity (e.g. trustee, power of attorney, attorney-in-fact, executor) for a family trust of an immediate family member

• Any volunteer or unpaid position where you:
o Are in a leadership position including but not limited to serving as an officer, director, or partner (e.g. president of a charity or on the board of a foundation)
o Handle funds such as:
 Acting as a treasurer, accountant, or bookkeeper,
 Voting on the disbursement of funds,
 Making investment/insurance decisions,
 Affecting transactions, or
 Collecting money or fundraising for an entity.

Fundraising activities – such as organizing/holding funds for a non-profit organization, creating a GoFundMe page, or similar activities – must be reviewed by ESI prior to engagement. Please note: “organizing/holding funds for a non-profit organization” would not include activities such as participating in a fundraiser for your child’s school- or scouting-related activity, for example.

PROHIBITED OBAs
Prohibited outside business activities include, but are not limited to:

• Acting as a mortgage broker,

• Acting as a life settlement or viatical agent,

• Acting as a moderator or sponsor of a social networking site that focuses on investments or topics in the investment industry,

• Selling or soliciting digital assets (including but not limited to cryptocurrencies, digital tokens, digital currencies, virtual assets, and initial coin offerings, and consulting/education services relating to digital assets),

• Employment by or association with any company, association, or organization that would conflict with, or would be adverse to the interests of, ESI.

HOW TO REPORT
To disclose a new OBA, update an existing OBA, or terminate a current OBA:

• Fully complete the Outside Business Activity Disclosure Form and provide supporting documentation when warranted, to avoid review delays.
o For a privately held corporation, LLC or partnership under your control, that you are an “agent” of, and/or have ownership in, please provide:
 a copy of the articles of organization,
 membership agreement, and
 a list of owners, their relationship to you, and their percentage of ownership, etc.
o If the OBA being disclosed requires documents to be filed with a state/regulatory body, please include a copy of those documents as well.

• Submit the Form to your supervisor for approval. The Form will then be submitted to ESI Licensing for Firm approval.

• If the Firm has no objection, you will receive notification that your OBA is approved.
o Always await approval notification before starting the activity.
o Take note of any restrictions to be compliant while engaging in the activity.

• IARs: If the activity is considered significant (e.g. makes up 10% or more of your income), ESI Licensing will help to facilitate the update of your ADV Part 2B disclosure brochure, if necessary.

Failure to report new OBAs, changes to existing OBAs, or terminating an OBA may result in disciplinary action.

QUESTIONS
If you have any questions regarding OBAs, please contact your supervisor and office manager who can work with ESI Licensing for any concerns.

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Click here for the most recent edition or Compliance Alliance.

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ESI Written Supervisory Procedures Update

ESI continually reviews its Written Supervisory Procedures (“WSP”) in accordance with regulatory and business requirements.  Effective June 30, 2022, ESI’s WSP manual has been updated to incorporate various changes.  Among others, the substantive changes are summarized below. 

Summary of changes

#	Title	Update
2.3	Outside Business Activities	Added a prohibition for selling or soliciting digital assets (including but not limited to cryptocurrencies, digital tokens, digital currencies, virtual assets, and initial coin offerings, and digital asset consulting/education services).
3.2.11	Maintaining Terminated Persons’ Registration	Added to reflect FINRA allowing individuals who terminate their registration to maintain their qualifications for five years following termination under certain conditions per amendments made to FINRA Rule 1240.
5.2.2.1	Doing Business As (DBAs) Names	Added clarification around DBAs. RRs may not use DBA names on customer communications except when: Clear and prominent identification of the Firm as the entity through which securities are offeredDBA name has been reviewed and approved by AGT and Compliance and required disclosures are madeClear explanation of the DBA and its relationship with the FirmCommunications are subject to review including content and disclosuresDBAs for insurance activities may not imply that securities, advisory services or financial planning services are offered through the DBA entity.
5.12	Electronic Communications Policy	Section 2.18 has been removed and combined with Section 5.12: Electronic Communication Policy so that the policies and the procedures are together in the same section.
9.7	Anti-Money Laundering	Section 2.15 has been removed and combined with Section 9.7: Anti-Money Laundering so that the policies and the procedures are together in the same section.
10.8.7	Financial Exploitation – Temporary Holds	Added an additional 30 days that a temporary hold may be placed when there is a reasonable belief of financial exploitation per amendments made to FINRA Rule 2165.
19.3.1	Correspondence	Added that municipal securities correspondence require review by a municipal securities principal. If a municipal securities supervisor is not available in the field office, the correspondence must be submitted ESI. A home office municipal securities principal will review and return to be retained in the Correspondence File. This was previously communicated under Field Notice 2019-06.

Location of manual

Please review the updated ESI’s Written Supervisory Procedures for details of the changes outlined in this notice. The manual may also be found on the NLG Website, under “Compliance” à “ESI Compliance” à “Overview” à “ESI Written Supervisory Procedures”.

QUESTIONS

If you have any questions regarding this notice, please feel free to contact ESI Compliance at 800-344-7437.

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EFA Written Supervisory Procedures Update

ESI Financial Advisors (“EFA”) continually reviews its Written Supervisory Procedures (“WSP”) in accordance with the regulatory and business requirements.  Effective June 30, 2022, ESI’s WSP manual has been updated to incorporate various changes.  Among others, the substantive changes are summarized below. 

Summary of changes

#	Title	Update
19.5	Investment Adviser Representative Continuing Education	Added the requirement for IARs to complete continuing education annually in certain states. For more details, please review Field Notice 2022-08.
19.6	Outside Business Activities	Added a prohibition for selling or soliciting digital assets (including but not limited to cryptocurrencies, digital tokens, digital currencies, virtual assets, and initial coin offerings, and digital asset consulting/ education services).
19.7	Borrowing From And Lending To Customers	Added details to the prohibition of IARs borrowing from or lending to customers to align with the ESI WSPs.
23.6	Accounts for Marijuana-Related Businesses and Associated Individuals	Added that the Firm does not allow opening accounts for marijuana businesses or customer who derive their income from marijuana businesses to align with the ESI WSPs.
37.4.3.2	Temporary Holds	Added an additional 30 days that a temporary hold may be placed when there is a reasonable belief of financial exploitation to align with the ESI WSPs.

Location of manual

Please review the updated EFA’s Written Supervisory Procedures for details of the changes outlined in this notice. The manual may also be found on the NLG Website, under “Compliance” à “ESI Compliance” à “Overview” à “EFA Written Supervisory Procedures”.

QUESTIONS

If you have any questions regarding this notice, please feel free to contact ESI Compliance at 800-344-7437.

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FINRA recently published a Cybersecurity Alert to warn firms of an ongoing phishing campaign that involves fraudulent emails purporting to be from FINRA and using either the domain name “@firms-finra.org” or “@firms-sipc.org”.  These domains are not connected to FINRA. Please delete any emails originating from these domain names.

Review This Alert for Details on What the Email Looks Like

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As you know, as a result of the DOL Rule, ESI has referred to doing business under two Prohibited Transaction Exemptions, also known as PTE 84-24 and PTE 20-02.

Compliance with PTE 84-24 took place in December of 2021.  It was largely focused on disclosure of third-party compensation from the recommendation to purchase insurance products such as fixed-indexed or variable annuities.

PTE 20-02 has a compliance date of June 30th, 2022.    By utilizing 20-02, reps can continue to receive third-party compensation for advice related to ERISA and IRA-based accounts, as long as certain criteria are met.  PTE 20-02 will be used for brokerage, mutual fund, and advisory business.  To comply with PTE 20-02 ESI has updated disclosures on various forms and created two new forms: the IRA-to-IRA Disclosure Form and the IRA Transfer of Assets Form. In addition, revisions have been made to the Defined Contribution Rollover Recommendation and the Defined Benefit Rollover Recommendation forms. Note that these new/updated forms have been available for use, however, starting June 1^st ,  the new versions of all forms must be used regardless of when they were signed. Beginning, June 30^th, if an error is made on the form, it is outdated, or it is missing, the business may need to be rejected per the regulation since disclosure must occur pre-transaction. The Operations Team may send reminder emails and/or call to remind reps of the upcoming changes while in the transition period.

The two new IRA to IRA Disclosures and the four revised Rollover Disclosures contain elements of the Best Interest Supplemental Worksheet.  As such, the Best Interest Supplemental Worksheet is no longer needed when one of these forms is required.

As we approach the enforcement date, you are encouraged to review the communications, training and reference materials that have been distributed over the past nine months. All communications and related materials can be found on the NL Agent Portal. Simply log in, click on Training, and choose the DOL Training Page.

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As you know, as a result of the DOL Rule, ESI has referred to doing business under two Prohibited Transaction Exemptions, also known as PTE 84-24 and PTE 20-02. Compliance with PTE 84-24 took place in December of 2021.  It was largely focused on disclosure of third-party compensation from the recommendation to purchase insurance products such as fixed-indexed or variable annuities. PTE 20-02 has a compliance date of June 30th, 2022.    By utilizing 20-02, reps can continue to receive third-party compensation for advice related to ERISA and IRA-based accounts, as long as certain criteria are met.  PTE 20-02 will be used for brokerage, mutual fund, and advisory business.  To comply with PTE 20-02 ESI has updated disclosures on various forms and created two new forms: the IRA-to-IRA Disclosure Form and the IRA Transfer of Assets Form. In addition, revisions have been made to the Defined Contribution Rollover Recommendation and the Defined Benefit Rollover Recommendation forms. Note that these new/updated forms have been available for use, however, starting June 1st ,  the new versions of all forms must be used regardless of when they were signed. Beginning, June 30th, if an error is made on the form, it is outdated, or it is missing, the business may need to be rejected per the regulation since disclosure must occur pre-transaction. The Operations Team may send reminder emails and/or call to remind reps of the upcoming changes while in the transition period. The two new IRA to IRA Disclosures and the four revised Rollover Disclosures contain elements of the Best Interest Supplemental Worksheet.  As such, the Best Interest Supplemental Worksheet is no longer needed when one of these forms is required. As we approach the enforcement date, you are encouraged to review the communications, training and reference materials that have been distributed over the past nine months. All communications and related materials can be found on the NL Agent Portal. Simply log in, click on Training, and choose the DOL Training Page.

127173(0622)1

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