FORESTERS EQUITY SERVICES, INC. ( FORESTERS EQUITY ) WRITTEN SUPERVISORY POLICIES & PROCEDURES ( WSPP )

Transcription

1 FORESTERS EQUITY SERVICES, INC. ( FORESTERS EQUITY ) WRITTEN SUPERVISORY POLICIES & PROCEDURES ( WSPP ) A REGISTERED BROKER-DEALER MEMBER FINRA, SIPC 6640 LUSK BLVD., SUITE A202 SAN DIEGO, CA FORESTERS EQUITY SERVICES, INC. IS A WHOLLY-OWNED SUBSIDIARY OF THE INDEPENDENT ORDER OF FORESTERS ( FORESTERS )

2 Table of Contents I. GENERAL COMPLIANCE AND SUPERVISORY STRUCTURE... 1 FORESTERS EQUITY SUPERVISORY STRUCTURE... 1 II. SUPERVISORY CONTROL SYSTEM... 2 SCHEDULES FOR COMPLIANCE INSPECTIONS... 3 TYPES OF INSPECTIONS... 4 ANNUAL REPORT TO SENIOR MANAGEMENT... 5 ANNUAL CEO COMPLIANCE CERTIFICATION... 5 III. FINANCIAL AND OPERATIONAL ACTIVITIES... 6 CUSTOMER PROTECTION RULE... 6 HANDLING OF CUSTOMER CHECKS AND SECURITIES... 6 BANK SECRECY ACT, RULE 17-A NET CAPITAL REQUIREMENTS... 7 REQUIRED BOOKS AND RECORDS... 8 REVIEW OF FINANCIALS... 8 RULE 17A SIPC REPORTS... 8 FEES CHARGED TO CUSTOMERS... 9 FINRA FEES AND ASSESSMENTS... 9 FIDELITY BOND... 9 IV. REGISTERED REPRESENTATIVE ACTIVITY... 9 PROHIBITED ACTIVITIES SANCTIONS RELATED TO PROHIBITED ACTIVITIES SYSTEM OF SUPERVISION DISCIPLINARY MEASURES DISCIPLINARY CONTINUING EDUCATION ENFORCEMENT OF POLICIES AND PROCEDURES V. UNREGISTERED PERSONS PERMISSIBLE ACTIVITIES OF UNREGISTERED PERSONS UNREGISTERED PERSONS IN BRANCH OFFICES AND NON-BRANCH LOCATIONS VI. SUPERVISORY RESPONSIBILITIES TYPES OF OFFICES OFFICE OF SUPERVISORY JURISDICTION ( OSJ ) OFFICE BRANCH OFFICES NON-BRANCH LOCATIONS ACCOUNT SUPERVISION ACCEPTABLE TYPES OF ACCOUNTS BROKERAGE ACCOUNTS DISCRETIONARY ACCOUNTS JOINT ACCOUNTS... 19

3 UGMA/UTMA ACCOUNTS ACCOUNT APPLICATION SPECIAL ARRANGEMENTS GOVERNING ACCOUNTS KNOW YOUR SECURITY UNACCEPTABLE TYPES OF ACCOUNTS PERIODIC REVIEW OF CUSTOMER ACCOUNTS OVERSIGHT OF ACCOUNTS CHANGES TO CUSTOMER ACCOUNT ADDRESS SUPERVISION OF CUSTOMER CHANGES IN INVESTMENT OBJECTIVES HOLDING CUSTOMER MAIL ACCEPTABLE FORMS OF CUSTOMER FUNDS COMMUNICATIONS WITH THE PUBLIC - SUPERVISION GENERAL STANDARDS SPECIFIC STANDARDS INCOMING CORRESPONDENCE OUTGOING CORRESPONDENCE REVIEW & RETENTION POLICY NETWORKING SITES RETENTION BLOGS / INSTANT MESSAGING GROUP S USE OF BD NAME/BROKER-DEALER DISCLOSURE ADVERTISING AND SALES LITERATURE WEBSITES HOSTING OF WEBSITES PUBLIC APPEARANCE SEMINARS AND OTHER SPEAKING ENGAGEMENTS Implications of the DOL Fiduciary Rule CHAT ROOMS USE OF FICTITIOUS BUSINESS NAME ("DBA") RR INVESTMENT ORDERS SOLICITED ORDERS ABSENCE OF BRANCH MANAGER/ PRINCIPAL VII. DISASTER RECOVERY PLAN VIII. REQUIRED BRANCH OFFICE FILES CUSTOMER ACCOUNT FILES CORRESPONDENCE FILE COMPLAINT FILE TRANSACTION SALES BLOTTER/CHECKS AND SECURITIES LOG CLIENT STATEMENT QUARTERLY REVIEW ACKNOWLEDGEMENT FILE ADVERTISING AND SALES LITERATURE FILE GIFTS AND GRATUITIES FILE NON-CASH COMPENSATION FILE DO NOT CALL/CONTACT FILE REGISTERED REPRESENTATIVE AND UNREGISTERED PERSON (NRF) FILE REGISTERED MEMO FILE... 42

4 RECORDS RETENTION IX. PROTECTION OF NON-PUBLIC CUSTOMER INFORMATION DEFINITIONS AFFILIATE ASSOCIATED PERSON CLEAR AND CONSPICUOUS CONSUMER CONTINUING RELATIONSHIP CUSTOMER CUSTOMER RELATIONSHIP NON-PUBLIC PERSONAL INFORMATION PERSONALLY IDENTIFIABLE FINANCIAL INFORMATION PUBLICLY AVAILABLE INFORMATION REGULATION S-P NOTIFICATION REQUIREMENT CONTENT OF NOTICE ACCESS TO CUSTOMER RECORDS COLLECTION OF CUSTOMER INFORMATION SECURITY OF CUSTOMER INFORMATION DISCLOSURE OF INFORMATION FORMER CUSTOMERS DISTRIBUTION OF PRIVACY POLICIES X. CUSTOMER COMPLAINTS WRITTEN COMPLAINTS VERBAL COMPLAINTS CUSTOMER COMPLAINT REPORTING RULE PROCEDURES RULE 4530A DISCLOSURE EVENT OR FILING CUSTOMER COMPLAINT FILINGS RULE INTERNAL REVIEWS CONTINUAL TRAINING XI. GIFTS, ENTERTAINMENT, AND NON-CASH COMPENSATION RECEIPT OF GIFTS SENDING GIFTS ENTERTAINMENT BEING ENTERTAINED ENTERTAINING NON-CASH COMPENSATION NON-CASH COMPENSATION PROCEDURE XII. ACCOUNTS OF REGISTERED REPRESENTATIVES OPENING A BROKERAGE ACCOUNT NAV PURCHASES FOR RR ACCOUNTS TRADING ON INSIDE INFORMATION XIII. REGISTRATION AND LICENSING... 56

5 U-4 REGISTRATIONS AND AMENDMENTS ERRORS AND OMISSIONS (E&O) INSURANCE FINGERPRINTING STATE REGISTRATION REQUIREMENTS PREVIOUSLY REGISTERED PERSONS INSURANCE APPOINTMENTS STATUTORILY DISQUALIFIED (MC-400) SUPERVISION OF STATUTORILY DISQUALIFIED INDIVIDUALS TERMINATION OF REGISTERED PERSONS BROKERAGE ACCOUNT PROTOCOL/FINRA RULE XIV. TRANSACTIONS AND OTHER ACCOUNT ACTIVITIES CONFIRMATIONS DISTRIBUTIONS FROM THE ACCOUNT DISBURSEMENTS FROM THE ACCOUNT ORDER TICKET APPROVAL OF ACCOUNT NAME OR DESIGNATION CHANGES FOR ORDERS TRANSACTION SALES BLOTTER / CHECK & SECURITIES LOG TRADE ERRORS ERROR RESOLUTION PROCESS TRANSACTION SUITABILITY USE OF EXCEPTION REPORTS XV. MUNICIPAL SECURITIES MATERIAL EVENTS COLLEGE SAVINGS PLANS SUPERVISORY RESPONSIBILITIES RULE G-9, G-19 AND G COMMISSION RATES (MUNICIPAL SECURITIES) RECOMMENDATIONS DISCLOSURE OF POLITICAL CONTRIBUTIONS MSRB RULE G MSRB RULE G MUNICIPAL SECURITIES ADVERTISING MUNICIPAL SECURITIES MANUAL ANNUAL REVIEW OF WSPPS RULE G CUSTOMER COMPLAINT BROCHURE G MSRB RULE G-40 CONTACT XVI. MUTUAL FUNDS AND VARIABLE PRODUCTS MUTUAL FUNDS SWITCHES SALES CHARGES BREAKPOINT SALES FAMILY DISCOUNTS CONTINGENT DEFERRED SALES CHARGES (B SHARES) LETTER OF INTENT AND RIGHTS OF ACCUMULATION NAV PURCHASES (NET ASSET VALUE) PROSPECTUS... 76

6 SELLING DIVIDENDS MUTUAL FUND MARKET TIMING AND LATE TRADING ACTIVITIES VARIABLE PRODUCTS RECOMMENDATION REQUIREMENTS REPLACEMENTS AND 1035 EXCHANGES PRINCIPAL REVIEW AND APPROVAL PROSPECTUS DELIVERY CONTRACT DELIVERY TRAINING MARKET TIMING BONUS CREDITS FREE LOOK LIQUIDITY REPLACEMENTS (1035 EXCHANGES) SWITCHING VARIABLE ANNUITIES IN ADVISORY ACCOUNTS VARIABLE PRODUCTS IN QUALIFIED ACCOUNTS RECIPROCAL ACTIVITY (FINRA CONDUCT RULE 2341) XVII. CONTINUING EDUCATION ANNUAL COMPLIANCE MEETING FIRM ELEMENT REGULATORY ELEMENT XVIII. ANTI-MONEY LAUNDERING ( AML ) XIX. SPECIAL ROLLOVER REQUIREMENTS XX. SUITABILITY GUIDELINES SUITABILITY GUIDELINES FOR MUTUAL FUNDS TIME HORIZON ASSET ALLOCATION SALES CHARGES BREAKPOINT CLASS B SHARES CLASS C SHARES SWITCHING SALES TO ELDERLY CLIENTS (AGE 70 AND OVER) MARKET TIMING AND LATE TRADING DOL FIDUCIARY RULE XXI. HEIGHTENED SUPERVISION CONSIDERATIONS APPENDIX A - IMPARTIAL CONDUCT PROCEDURES... 93

7 I. GENERAL COMPLIANCE AND SUPERVISORY STRUCTURE Foresters Equity is a member of the Financial Industry Regulatory Authority ( FINRA ) Inc., and the Securities Investors Protection Corporation, ( SIPC ) and is a registered broker-dealer with the Securities and Exchange Commission, ( SEC ) Foresters Equity depends on the ability of its Registered Representatives ( RRs ) to provide quality service to customers in a manner that is ethical, fair, and equitable to all concerned. Failure to comply fully with the rules and policies contained in this manual may jeopardize the individual RR, the Principals, other staff and Foresters Equity itself. Beyond the standard level of compliance, it is expected that all personnel will reflect the tone at the top or the culture of compliance that Foresters Equity wishes to support. As part of its responsibilities as a broker-dealer, Foresters Equity is required to maintain a manual outlining its procedures for compliance and the supervision of associated persons. Further, it is the responsibility of Foresters Equity and its Principals to ensure that the provisions of this manual and all applicable securities laws, rules, and regulations are communicated to and understood by all RRs. As such, Foresters Equity Principals will engage in regular and frequent review of Foresters Equity documents and office activities. All documents relating to Foresters Equity activities are the property of Foresters Equity. All Foresters Equity Principals, including the Compliance Department shall have unrestricted access to documents under their purview for the purpose of engaging in proper supervision of RRs. Foresters Equity requires annual written attestation from all its RRs regarding: a) Opening a personal brokerage account b) Private securities transactions c) Outside business activities Upon initial registration with the firm, each RR must sign an Attestation Form acknowledging electronic receipt of this manual and his/her responsibility to uphold the policies and procedures, and any and all other requirements of the firm. The signed acknowledgement must be provided to the Licensing & Registration Department. The manual is viewable and can be downloaded from the Foresters Equity website at The Foresters Equity Compliance Department is staffed by licensed, trained and experienced personnel whose duty it is to develop and implement procedures reasonably designed to allow supervisory personnel to detect and prevent violations of industry standards and policies. FORESTERS EQUITY SUPERVISORY STRUCTURE The responsibility of a broker-dealer to supervise its operations, in particular the Page 1 of 94

8 activities of its RRs, is a common theme in SEC and FINRA regulations. The statutes of individual states echo these regulators concerns. Foresters Equity supervises its business, conducted by RRs and qualified staff, through its Principals or other qualified personnel, who report to Foresters Equity Home Office. Foresters Equity may elect to operate from Offices of Supervisory Jurisdiction ( OSJ ), Branch Offices, and/or Non-Branch ( registered as non-registered ) locations at its discretion, and agrees to ensure that the supervisory structure will at all times, include an organizational chart that ensures each RR is subject to adequate and qualified supervision. Foresters Equity current structure maintains the Home Office as the sole OSJ. Each RR is supervised either by an onsite Branch M a n a g e r / Principal, or from the OSJ. Home Office Principals are responsible not only for the Foresters Equity business run through a branch office, but also for the securities activities of all of the RRs operating out of or reporting to the branch office and all non-registered locations. It is important that each RR understand his or her own role in supporting the efficacy of the procedures by submitting fully to them, understanding them, and asking for clarification regarding any aspect of the procedures that may be unclear or which may not appear relevant. The supervisory structure will not be effective without the compliance of each and every RR with all state and federal laws as well as rules and policies established by the broker/dealer. Foresters Equity will appoint a member of senior management who is also a registered principal of the firm to represent, vote, and act on Foresters Equity behalf in all FINRA affairs. The firm s designee will review annually and, if necessary, update the firm s executive representative information within 30 days following any changes. II. SUPERVISORY CONTROL SYSTEM The material in this section is provided only as a guideline relative to the supervisory role. It is not intended to detail each and every supervisory responsibility. A thorough knowledge of the various regulations of the FINRA, applicable state codes, the basic Federal Acts (such as the Securities Act of 1933, Investment Company Act of 1940 and the Investment Advisors Act of 1940) and the various rulings by the SEC, the State Securities Commissioners and the FINRA are necessary for the Supervising Principal to properly perform his/her responsibilities. The Chief Compliance Officer is the Principal responsible for conducting the review of the supervisory system, associated procedures and office inspections in order to ensure that Foresters Equity has procedures in place reasonably designed to achieve compliance with applicable securities laws and regulations, and with FINRA rules. If the review reveals supervisory weaknesses or problems threatening such compliance, the Principal(s) is/are responsible for ensuring appropriate actions are taken to correct the identified problems, either through his/her own actions or by making recommendations to Senior Management. Page 2 of 94

9 The President in conjunction with the Firm s Board of Directors will ensure that Foresters Equity is provided sufficient resources in terms or qualified principals, transaction review and audit personnel and financial resources at a level sufficient to ensure Foresters Equity meet its compliance obligations as required by the FINRA and the SEC. This includes retaining independent third party expertise that may be provided by legal counsel or consultants who have proven expertise in Foresters Equity business areas. The Chief Compliance Officer will oversee the periodic review as required by FINRA no less than annually to confirm that the supervisory procedures appropriately reflect Forester Equity business activities in light of new and existing rules/regulations, customer complaints or litigation, branch office exams or other internal audits, and regulatory issues. This review includes, but is not limited to the following areas: written supervisory policies and procedures manual registration issues advertising and correspondence review transaction review record-keeping financial requirements and reporting transmittal of customer funds changes in customer account information outside business activities SCHEDULES FOR COMPLIANCE INSPECTIONS An independent examiner, as designated by the President, Chief Compliance Officer or VP Compliance, will inspect the Office of Supervisory ( OSJ ) no less than annually. Branch office locations will be inspected annually. RRs conducting business from a nonbranch location, will be inspected every three years. Audits of associated persons 1 (earning less than $100,000 in GDC the previous year) in non-branch locations will be conducted at least every three (3) years RRs who earn in excess of $100,000 will be examined by the home office or qualified independent examiner. While the Compliance Department adheres to a prescribed schedule to ensure that all offices are regularly visited, unannounced and off-cycle visits are common in the Foresters Equity supervisory system. Foresters Equity encourages unannounced visits in its effort to conform to FINRA guidance on the manner of inspecting and review onpremises branch activities. RR's should bear in mind that the regulators, including the SEC, FINRA and the states, rarely provide advance notice of their inspections. Therefore, the practice of conducting unannounced office exams is a useful tool, and as such will be employed in a variety of 1 BMs cannot perform audits on those individuals which they receive an override on. Audits will be conducted by a BM that does not have a financial interest in the associated person, the home office, or outside compliance consultant. Page 3 of 94

10 formats by Foresters Equity. TYPES OF INSPECTIONS Inspections may be conducted for a variety of reasons. A description of some of the types of inspections follows: Regular Cycle: Branch office inspections are those regularly scheduled annually and are typically pre-announced inspections conducted by a Compliance Department Registered Principal or other designated Registered Principal from the OSJ Home Office or designated independent examiner. The inspections may be completed in a day, but on occasion may require a longer time commitment depending on the size and scope of the location to be inspected. New branch offices are typically audited within one year of being established. The inspection includes a review to ensure the branch office is in compliance with all applicable laws and regulations and that the firm s policies and procedures are being adhered to. The compliance department maintains a written record of the inspection for regulatory review. Inspections of non-branch locations will be conducted once every three (3) years, or more often as needed by the Compliance Department Registered Principal or appropriately licensed designee to ensure the registered representative conducting business from the location is in compliance with all applicable laws and regulations and that the firm s policies and procedures are being adhered to. The compliance department maintains a written record of the non-branch location inspection for regulatory review. A copy of the completed audit workbook is provided to the branch manager / nonbranch location representative along with an Affidavit used as a tool to correct any deficiencies. Written reports of office inspections will be retained subject to frequency, but no less than the greater of three (3) years or the date of subsequent inspection. The Inspection Report format, at minimum, must address the following requirements: Safeguarding of Funds Books and Records Maintenance Supervision of accounts by a Branch Manager/Principal Transmittal of funds between customer and RR and between customers and third parties Validation of customer address changes Validation of changes in customer account information Any change in the frequency of inspections will be dependent upon evaluation of customer complaints, and change in business structure in the location, among other factors. Special (Off Cycle Audits): At times an inspection will be conducted in response to Page 4 of 94

11 special circumstances. Follow-up: Based on the results of an inspection, or on the response to any number of deficiencies or other circumstances, a follow-up inspection may be conducted. In most cases, follow-up inspections will focus on a particular or limited area, and will not utilize the complete inspection checklist. However, there is no limitation to the scope of a follow-up inspection. Document and information requests are entirely at the discretion of the examiner. Frequently, a follow-up inspection will be conducted on an unannounced basis. Unannounced: 10% of Branch Office inspections will be unannounced. As noted above, the unannounced inspection is a common and important component of Foresters Equity supervisory system. The unannounced inspection is recommended by regulators, and is helpful in determining audit- readiness throughout Foresters Equity supervisory system. Heightened Inspections: Heightened inspections may include: Unannounced visits Increased frequency of inspections Broadened scope of the inspections Review by other supervisors ANNUAL REPORT TO SENIOR MANAGEMENT The Chief Compliance Officer, in accordance with FINRA Rule 3120, is currently designated to establish, maintain, and enforce a system of supervisory control policies and procedures that (a) test and verify that Foresters Equity supervisory procedures are reasonably designed with respect to the activities of the member and its RRs and associated persons, to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules and (b) create additional or amend existing supervisory procedures where the need is identified by such testing and verification, Home Office Registered Principals will report to the Chief Compliance Officer no less than annually, either prior to execution of the certification, or at the earlier of their next scheduled meeting or within 45 days of execution of the certification, describing Foresters Equity system of supervisory controls, and significant identified exceptions, with any additional or amended supervisory procedures created in response to the test results. ANNUAL CEO COMPLIANCE CERTIFICATION Each year, in accordance with FINRA Rule 3130, the CEO of Foresters Equity will execute a certification of Foresters Equity compliance and supervisory processes. The certification by the CEO will confirm the following: Foresters Equity has in place a process to establish, maintain, review, test and modify written supervisory procedures reasonably designed to achieve compliance with applicable regulatory rules and federal securities laws and regulations Page 5 of 94

12 The CEO has met with the Chief Compliance Officer at least once in the preceding year to discuss Foresters Equity processes, and to identify and address any significant compliance problems or emerging issues A report has been prepared regarding the current status and effectiveness of the compliance and supervisory procedures. The report has been reviewed by the CEO, Chief Compliance Officer, and any other officers as deemed necessary and submitted to the Foresters Equity Board of Directors and Foresters Audit Committee The CEO has consulted with the Chief Compliance Officer, other officers, staff, outside consultants, attorneys and/or accountants in order to attest to the statements made in the certification Record of the certification will be maintained in the compliance files and made available for inspection purposes. III. FINANCIAL AND OPERATIONAL ACTIVITIES CUSTOMER PROTECTION RULE Oversight of the firm s financial record keeping is the duty and responsibility of the FINOP. SEC Rule 15c3-3, otherwise known as the Customer Protection Rule, prohibits brokerdealers from using customers funds and securities to finance its business. Any change in this status must be first approved by the FINRA District office in writing. Evidence of the written approval must be acknowledged by signature of the President of the firm and then retained by the Chief Compliance Officer. HANDLING OF CUSTOMER CHECKS AND SECURITIES The firm will instruct customers to make checks payable to the clearing firm or Investment Company. Checks payable to Foresters Equity are not accepted. The FINOP is responsible for determining the acceptability of all forms of fund deposits. The operations department will ensure that the Checks and Securities Blotter is prepared and maintained and promptly forward all checks to the appropriate party. If a customer check is received from a rep and made payable to the broker-dealer, the check will be returned to the Rep the following business day. If a check is received from a customer and made payable to the broker-dealer, the check will be returned to the customer the following business day and Foresters Equity is required to notify the customer, in writing, of the error. A copy of the letter will be maintained in the customer file. (See Section VI Account Supervision #19 for Unacceptable Forms of Customer Funds.) Page 6 of 94

13 BANK SECRECY ACT, RULE 17-a-8 The Department of the Treasury's amendments to the Bank Secrecy Act (BSA), which facilitate tracing funds through the funds-transmittal process, became effective May 28, For transmittals of funds of $3,000 or more, broker-dealers are required to obtain and keep certain specified information concerning the transmitter and the recipient of those funds. In addition, broker-dealers must include this information on the actual transmittal order. Foresters Equity requires written requests for any transfer of funds subject to the BSA. The written request shall include at minimum the parties to the transfer, the date and amount requested, the use of proceeds, and the signature of a principal of the firm, whose authorization shall be required in order to complete the transfer request. The FINOP, Chief Compliance Officer, and/or any Home Office Registered Principal is qualified to approve such transfer through his/her initials on the written request. The review shall be retained among the firm s central records, and shall include a Home Office Registered Principal s initials approving any requests. NET CAPITAL REQUIREMENTS In accordance with the SEC, Foresters Equity will maintain the minimum net capital requirement based upon its operations. As of the date of this manual, the firm s statutory net capital requirement is $5000. The FINOP understands that minimum net capital is a continuous requirement and that BD will maintain adequate excess net capital at all times. Foresters Equity will formally compute net capital on a monthly basis unless proximity to the minimum net capital requirement dictates otherwise. Each month, a record of the net capital calculation will be retained among the central files of the firm. The FINOP shall verify the accuracy of the report. Preparation and Retention of Regulatory Financial Reporting FOCUS IIA - Shall be completed and submitted to the FINRA Washington Office and the FINRA District Office not later than the 17th business day following each calendar quarter end. Submission shall be made through Regulation Systems. Verification of accuracy shall be evidenced by the FINOP s signature on the printed record retained in the office. Annual Audit - The independent annual audit will be filed with the SEC, FINRA, and each state(s) in which Foresters Equity is registered that requires it within 60 calendar days following Foresters Equity fiscal year end. The FINOP is charged with responsibility for hiring the auditors. Verification of the accuracy of the audit shall be evidenced by Senior Management s signature on the audit report. Page 7 of 94

14 REQUIRED BOOKS AND RECORDS The FINOP will ascertain that Foresters Equity maintains, at a minimum, the following books and records for the period of time as described in SEC Rule 17a-4: Statement of Financial Condition Income Statement Trial Balance General Ledger Net Capital Computation Cash Receipt and Disbursement Blotter FOCUS IIA Annual Report from Independent Auditors REVIEW OF FINANCIALS The President/CEO will regularly review the activities of the Financial and Operations Principal ( FINOP ), however the FINOP will be responsible for the accuracy and compliance of the firm s financial books and records. RULE 17a-11 In accordance with SEC Rule 17a-11, in the event Foresters Equity computed net capital drops below the required minimum, telephonic or facsimile notice will be sent to the applicable SEC and FINRA offices on the same day that the net capital violation occurs. The FINOP shall make such notification. In the event Foresters Equity net capital drops below 120% of the required minimum (or below $6000), the FINOP shall notify FINRA within 24 hours of occurrence by phone or by facsimile. Immediately upon learning of a net capital deficiency, the President/CEO shall order that all operations cease unless and until appropriate capital levels are achieved. SIPC REPORTS Foresters Equity will prepare and submit the SIPC Annual Assessment report to the FINRA within 30 calendar days of the first half of Foresters Equity fiscal year end. A record of the report and evidence of payment, along with supporting documentation, shall be retained among the central records as evidence of annual completion. Verification of the accuracy of the report shall be evidenced by the Designated Principal s signature on the report and/or on the accompanying check. Page 8 of 94

15 FEES CHARGED TO CUSTOMERS FINRA Rule 2122 (Charges for Services Performed) states, Charges, if any, for services performed, including miscellaneous services such as collection of moneys due for principal, dividends, or interest; exchange or transfer of securities, appraisals, safekeeping or custody of securities, and other services, shall be reasonable and not unfairly discriminatory between customers. FINRA FEES AND ASSESSMENTS As a FINRA member, the firm is required to pay annual fees and assessments to the FINRA based on the firm s revenue as reported on the FOCUS Reports. Records of this assessment and payment are maintained in the Home Office. FIDELITY BOND Every firm that has employees and is a member of SIPC (and not an exchange member) must maintain a fidelity bond, and renew such annually. Each year the FINOP must review the fidelity bond coverage to ensure its adequacy. IV. REGISTERED REPRESENTATIVE ACTIVITY Compliance with directives issued by FINRA, the SEC and Foresters Equity policies and procedures is the responsibility of each RR associated with Foresters Equity is bound by the provisions of this manual and agrees to abide by these procedures as they pertain to our authorized investment products 1. Unless specifically approved in writing by the CCO and the President of Foresters Equity, no prospective recruit will be offered a recruiting bonus, forgivable loan or other non-cash incentive as an inducement to join Foresters Equity broker-dealer or registered investment advisor. Each RR is subject to a variety of laws, regulations and rules. These include state securities (Blue Sky) laws, state insurance laws, and several federal acts. In addition, each is subject to the provisions of the by-laws, Conduct Rules and related interpretations of FINRA and MSRB Rules. Finally, each RR must comply with the rules and the policies and procedures established by Foresters Equity. It is the RR s responsibility to familiarize him or herself with these laws, regulations and policies and procedures in the jurisdictions in which they do business. Other requirements for all Foresters Equity RRs include, but are not limited to: All outside business activity must be disclosed on an Outside Business Activity Disclosure form and be approved in writing from the Compliance Department prior to engaging in the activity. Completion of an annual questionnaire regarding RR activities Participation and completion of an annual compliance meeting Completing annual firm element continuing education course(s) to include AML Page 9 of 94

16 training as developed by the firm In addition, all RRs are subject to applicable regulatory continuing education requirements and firm element continuing education. All RRs are required to disclose bankruptcies, judgements/liens, compromises, and criminal matters to the Compliance Department immediately as they become aware of the matter. Failure to satisfy these requirements will result in sanctions; to include, by not limited to monetary fines, commission retention, business suspense, disciplinary action and/or potential termination for failure to follow the firm s policies and procedures. The U5 will be noted as such. PROHIBITED ACTIVITIES RRs/IARs of Foresters Equity Services are specifically prohibited from engaging in the following activities: Providing investment advice or recommendations of any type to customers of FESCO through communications. Accepting orders to buy or sell securities products through communications. RRs/IARs are required to speak with a client before facilitating any transactions. Accepting any remuneration from any investment company, RR or wholesalers with regard to any seminar or marketing support) without the prior written approval from the Compliance Department. Accepting orders from anyone other than a customer for the customer s account with the exception of someone who has written authorization (i.e. POA). Accepting, directly or indirectly, from any investment company, affiliate of an investment company or third party carrier any non-cash sales compensation or sales incentive item (including, but not limited to, travel bonuses, prizes, and awards) without the prior written approval from the Compliance Department. Acting as personal custodian of securities, money, or other property belonging to a customer with the exception of an immediate family member. As a trustee/co-trustee in any trust account other than accounts of a family member. Acting in a fiduciary capacity unless the beneficiary is a member of the RR s immediate family. The definition is immediate family member shall include parents, step-parents, grandparents, mother-in-law or father-in-law, spouse, domestic partner or sibling, brother-in-law or sister-in-law, son-in-law or daughter-in-law, children, stepchildren, grandchildren, cousin, aunt or uncle, or niece or nephew, and shall also include any other person whom the registered person supports, directly or indirectly, to a material extent. Custodian, trustee, successor trustee, co-trustee, power of attorney or executor capacities are not permitted without written approval of the Firm. Fiduciary capacities are typically found within trusts, wills, court ordered executorships, power of attorney authority, caring for incapacitated individuals and for estate management. A trust protector is an appointed individual who oversees the trustee and often times has the authority to hire and fire the trustees. The Firm does not distinguish between trustee capacity and trust protector capacity; both are viewed as fiduciary relationships and are therefore prohibited There should be no fee earned by the RR. Page 10 of 94

17 Acting in the capacity of an Independent RIA or providing financial planning independent of Foresters Equity RIA is prohibited. Conducting advisory services while not appropriately licensed/contracted as an Investment Advisor Representative with Foresters Equity Investment Advisor. Conducting outside business activity without prior disclosure and written approval of the activity to the compliance department. Agreeing to repurchase at some future time an investment from a customer for the RR s own account, for the account of Foresters Equity or for any other account. Borrowing money or securities from a customer. Falsifying customer signatures on transaction documents and/or other documents. Creating or utilizing a web site for the use of generating business on behalf of Foresters Equity without prior written approval from the Compliance Department. Creating or undertaking Discretionary Accounts which are defined as the authority to exercise time and price discretion. Creating independent customer account statements (consolidated statements). Distributing to customers any research material marked "for internal use only" or "for broker-dealer use only". Submitting business directly to the fund company or insurance carrier/company. All business must be submitted to your branch office and the home office OSJ for processing and approval. Accepting checks payable to Foresters Equity, FESCO, an RR or RR s DBA or third party checks written on personal banking accounts. Funding a customer account from RR personal account. Forwarding or agreeing to forward customer confirmations/statements of accounts to other than the account holder at the account holder s address of record. Holding any discretionary authority or power-of-attorney for a customer's account. Initiating any activity in a customer account without prior written authorization from the customer. Maintaining a joint securities account with a customer or sharing in any benefit resulting from a customer securities transaction. Making sales of mutual funds without explaining the breakpoints to customers and/or the sale of mutual funds in dollar amounts below breakpoints for the purpose of maximizing sales charges. Moving money from accumulation product to another for the sole purpose of generating commissions (switching/churning). Opening a personal securities account or commodities account with a brokerage firm without prior written approval from the Compliance Department. Opening a trust account for a minor other than a custodial account Receiving compensation from any other person as a result of any business activity outside of Foresters Equity without prior written notice and received written approval from the Compliance Department. Guaranteeing customers against loss in connection with any securities transaction or in any securities account held by the customer. Page 11 of 94

18 Providing advice beyond RR licensure. Raising money individually or as an agent for any business enterprise without prior written approval from the Compliance Department. Recommending investments without thorough understanding of customer financial situation and investment objectives. Removing records from a Branch Office without prior written approval from the Compliance Department. Selling an investment without providing a current prospectus of the investment (dated within 13 months). Selling Away (Private Securities Transactions) - Accepting or receiving, directly or indirectly, from any person, firm, corporation, or association other than Foresters Equity compensation of any kind, such as a bonus, commission, fee, gratuity, or other consideration, in connection with any transaction, in the investment field or what might be construed to be an investment, without prior written approval from the Compliance Department. The definition of investment for purposes of this rule includes; any security, real or personal property that can be construed in commonly used terminology to be an investment (an outlay of money for income or profit), e.g., gold, silver, diamonds, paintings, antiques. The Firm will not permit any BM, RR or IAR to own, trade in or facilitate Bitcoin transaction, even in the form of an Outside Business Activity or any other capacity. Additionally, Branch Managers will be expected to specifically ask any potential new prospective employee about their personal trading history regarding Bitcoin or other crypto-currencies. This issue will factor into the vetting process of any potential candidates. In addition, current staff (Managers, RRs, IARs and home office personnel) will not be permitted to maintain existing personal holdings in Bitcoin or any other form of crypto-currency, as well. Staff is instructed to liquidate these positions immediately. The firm will not permit business based on a 10% free-withdrawal being moved (e.g., Annuity, mutual fund, etc.) on which the firm and/or a representative has received a portion of any commission, sales charge, dealer concession or other similar compensation, (collectively, a Commission ) for a period of twenty-four (24) months from the date on which the commission was assessed. Selling funds without first explaining to customers the use of a letter of intent ( LOI ) or rights of accumulation ( ROA ). Selling mutual funds to customers shortly before an ex-dividend date without first explaining the consequences of such sales. Settling errors and/or complaints directly with a customer. Sharing any part of commissions received for selling an investment, either directly or indirectly with any person, firm, or corporation. RR s may not pay such compensation or any part thereof to any person, firm, or corporation as a bonus, commission, fee, or other consideration for business referred. Soliciting or selling in a state in which the RR is not properly licensed or appointed. Soliciting or selling any products that have not been approved by Foresters Equity, to include but not limited to, private placements, preferred stock, promissory notes and etc. Utilizing home equity or reverse mortgage proceeds to purchase investment Page 12 of 94

19 products. Taking or receiving directly or indirectly or sharing in the profits or losses of any customer's account. Using cold call scripts in connection with customer solicitation without prior Compliance Department written approval. Accepting cash from customers. Warranting or guaranteeing the present or future value or price of any investment. Life Settlement transactions are strictly prohibited. SANCTIONS RELATED TO PROHIBITED ACTIVITIES In cases involving violations related to prohibited activities, Foresters Equity will assess internal actions involving a RR sanction. In certain instances, the FINRA requires disclosure of the action taken by Foresters Equity on the RRs Form U-4. Sanctions imposed by Foresters Equity will be determined on the basis of the following guidelines, although additional guidelines may apply in any case: Attempt to conceal misconduct Degree of exposure of Foresters Equity and/or to the registration status of the RR Extent of harm or loss to customer Honest misunderstanding of available information (ignorance of information will not serve to mitigate a situation or penalty) Level of cooperation on detection Number of prior violations Prior or similar misconduct (a pattern of repeat violations will always result in a more severe sanction) Recklessness or willful disregard for procedures Degree of lack of suitability of product for customer Supervision of RR Sales In addition to any additional requirements that may be imposed by Foresters Equity it is the responsibility of every associated RR to be familiar with FINRA Conduct Rules. FINRA Rules The FINRA Rules are included in the "FINRA Manual", a current copy can be found on Alternatively, RRs may access the FINRA Manual on the Internet at Much of the "FINRA Manual" is directed to the activities of the broker-dealer. As RRs, certain sections are particularly pertinent and the RRs should be familiar with them. Knowledge of the FINRA's expectations and prohibitions will prevent many inadvertent errors and omissions. Particular attention is directed to the following sections under the FINRA s Conduct Rules: FINRA Conduct Rule Standards of Commercial Honor and Principles of Page 13 of 94

20 Trade FINRA Conduct Rule Use of Manipulative, Deceptive or Other Fraudulent Devices FINRA Conduct Rule 2210 Communications with the Public FINRA Conduct Rule Recommendations to Customers FINRA Conduct Rule Customer's Securities or Funds FINRA Conduct Rule Investment Company Securities FINRA Conduct Rule 3110 Supervision FINRA Conduct Rule 3270 Outside Business Activities FINRA Conduct Rule 3280 (e)(1) - Private Securities Transactions NASD Conduct Rule Transactions for or by Associated Persons FINRA Conduct Rule Books and Records SYSTEM OF SUPERVISION Foresters Equity exercises its supervisory responsibility as follows: The rules and regulations of the securities industry mandate securities firms to selfregulate their operations and sales practices. A system of supervisory controls is a requisite to ensure compliance with the industry's rules and regulations. The required practice of self-regulation makes Foresters Equity liable and responsible for the actions and activities of its associated personnel. Any securities regulation violation by an associated person of Foresters Equity subjects the associated person's immediate supervisor and Foresters Equity to potential disciplinary action for failure to supervise. DISCIPLINARY MEASURES DISCIPLINARY CONTINUING EDUCATION In the event that a RR is required to complete Regulatory Element computer-based training sessions(s) as a disciplinary measure, the RR will be responsible for absorbing the cost of such session(s). Completion of any such required Regulatory Element session(s) must be promptly reported to Compliance. ENFORCEMENT OF POLICIES AND PROCEDURES Foresters Equity has established internal guidelines for disciplinary sanctions against its associated personnel who may be in violation of regulatory requirements and/or its policies or procedures. These sanctions are designed to help Foresters Equity maintain a high standard of commercial honor and to serve as a deterrent to violations or future violations. Sanctions imposed by Foresters Equity may include one or more of the Page 14 of 94

21 following: Verbal Warning Letter of Caution Censure, Fine, or Suspension Rescission of Trade(s) with RR bearing cost of market exposure and other related costs Forfeiture of Commissions Suspension of recruiting privileges Heightened supervision 2 No More Business in all or certain accounts Prohibition against advertising Retraction of Principal privileges and/or authority Remedial education or training at the RR s expense Internal or independent special examination or review at the RR s expense Termination ( Discharge from Foresters Equity ) With CEO approval, sanctions may be imposed by the Chief Compliance Officer or VP Compliance pursuant to discussion with Senior Management and Principal of the RR in question. A direct line Principal for an RR is authorized to impose sanctions where warranted. The RR receiving the sanction will be apprised of any resulting regulatory disclosure implications applicable to the event in question. Final authority for determining an RR appeal must be submitted in writing to the CEO, for discussion with the Chief Compliance Officer and Senior Management. V. UNREGISTERED PERSONS In general, unregistered persons are prohibited from any activity that would trigger a registration requirement. Specifically, this includes solicitation of customers in any form, supervision of licensed persons and acceptance of accounts or transactions from a customer on behalf of Foresters Equity. In accordance with the SEC, all unregistered personnel and any individual who regularly has access to the keeping, handling or processing of monies or original books and records relating to Foresters Equity business will be fingerprinted through FINRA. PERMISSIBLE ACTIVITIES OF UNREGISTERED PERSONS FINRA has clarified the circumstances under which unregistered personnel may contact prospective customers. The following summarizes the activities that the FINRA considers permissible: Extending invitations to office sponsored events at which any substantive 2 Please see the section titled Heightened Supervision Considerations later in the Manual for further information. Page 15 of 94

22 presentations and account or solicitation will be conducted by appropriately registered personnel Inquiring whether the prospective customer wishes to discuss investments with a registered person Determining whether the prospective customer wishes to receive investment literature from the registered person Generally ministerial or clerical office duties such as filing, reception, and event planning The Principal or Registered Representative employing unregistered personnel to perform these functions should observe the following guidelines: Pursuant to FINRA By-Laws, unregistered personnel may not discuss general or specific investment products or services offered by the broker-dealer Unregistered personnel may not pre-qualify prospective customers as to financial status, investment history and objectives Unregistered personnel may not solicit new accounts or orders Unregistered personnel with access to non-public information must be fingerprinted. The employing Principal or Registered Representative should provide unregistered personnel with securities industry orientation and training that specifically addresses the limitations of such activities, the regulatory consequences of exceeding these limitations, and the fact that such persons are subject to the rules of the FINRA and its disciplinary authority. The employing Principal or Registered Representative should conduct a reasonable inquiry of such unregistered personnel background prior to hiring to determine that they are not statutorily disqualified from becoming associated with Foresters Equity. Unregistered personnel fingerprints must be submitted to the Registration Department for submission to FINRA for review by the Federal Bureau of Investigation ( FBI ). Unregistered personnel may not be compensated from fees or commissions or a percentage of fees or commissions from an RR of Foresters Equity. The employing Principal or Registered Representative should take reasonable steps to ensure that the activities of unregistered personnel are consistent with applicable state statutes and rules and with the rules of other self-regulatory organizations. The employing Principal or Registered Representative should be able, on request, to demonstrate that his/her procedures include procedures reasonably designed to prevent unregistered personnel from engaging in conduct that violates FINRA rules. The employing Principal or Registered Representative is advised to review the activities of unregistered personnel to ascertain that such persons are not functioning in a manner requiring registration. UNREGISTERED PERSONS IN BRANCH OFFICES AND NON-BRANCH Page 16 of 94

23 LOCATIONS Upon hiring, unregistered personnel are required to complete and submit to the Compliance Department a Foresters Equity Non-Registered Filing Attestation acknowledging the Firm s policies applicable to unregistered personnel duties. As part of periodic Branch Office compliance inspections, the auditor will verify that any unregistered personnel only perform allowable activities, ensures that he or she has received training that specifically addresses the limitations of such activities, the regulatory consequences of exceeding these limitations, and the fact that such persons are subject to the rules of the FINRA and its disciplinary authority, and only receives a salary or hourly wage as compensation. Any discrepancies from this policy must be promptly reported to Compliance. VI. SUPERVISORY RESPONSIBILITIES TYPES OF OFFICES Foresters Equity carries out its sales efforts through different types of offices. OFFICE OF SUPERVISORY JURISDICTION ( OSJ ) OFFICE The definition of OSJ includes an office from which final acceptance of new customer accounts, review and endorsement of customer orders, approval of advertising or sales literature and/or responsible for supervising the activities of persons associated with the firm at one or more Branch Offices or Non- Branch locations. Under Foresters Equity current Compliance and Operating structure, the only OSJ is the Home Office. BRANCH OFFICES All Branch Offices are under the jurisdiction of the OSJ Home Office, specifically the President or Vice President of Operations. All business transacted by a Branch Office must be forwarded to and processed through the OSJ Home Office. The Branch Manager/Principal is responsible for reviewing the completeness and accuracy of transaction documents and ensuring their timely forwarding to the OSJ Home Office for processing. Every location registered as a supervising branch location is inspected by a designated principal at least once a year. Office inspections may be announced or unannounced. At the completion of the inspection, the examiner will provide the branch manager with a copy of the completed audit workbook along with a list of the deficiencies and an Page 17 of 94