Investment Professionals, Inc. ( IPI or the Company )

Transcription

1 Investment Professionals, Inc. ( IPI or the Company ) SUPERVISORY PROCEDURE MEMORANDUM Effective Date November 12, 2008 Updated October 1, 2009 Updated April 1, 2010 Updated January 1, 2011 Updated May 1, 2011 Updated October 14, 2011 Jay McAnelly, Chief Executive Officer and President THE PURPOSE OF THIS MEMORANDUM IS TO MAKE CLEAR FOR ALL ASSOCIATED PERSONS, THE SUPERVISORY PROCEDURES, WHICH WILL GOVERN THE STANDARD OF CONDUCT OF ALL ASSOCIATED PERSONS OF THE COMPANY. FAILURE TO FOLLOW THESE SUPERVISORY PROCEDURES AND STANDARDS OF CONDUCT WILL BE CAUSE FOR DISMISSAL OF THE OFFENDING ASSOCIATED PERSON OR PERSONS. THIS MEMORANDUM ALSO SETS FORTH THE DUTIES AND RESPONSIBILITIES OF THE SUPERVISORY PERSONNEL, AS WELL AS THE STANDARDS OF PROCEDURE RELATING TO BOOKKEEPING AND OTHER STANDARDS REQUIRED BY LAWS. MGL Consulting Corporation

2 SUPERVISORY PROCEDURES MEMORANDUM TABLE OF CONTENTS SUPERVISORY PROCEDURES MEMORANDUM... I TABLE OF CONTENTS... I OVERVIEW THE COMPANY WRITTEN SUPERVISORY PROCEDURES WSP NOTES TO FILE... 1 SUPERVISION SUPERVISORY PERSONNEL Designation of Offices and Branch Managers CERTIFICATION OF COMPLIANCE AND SUPERVISORY PROCEDURES Appointment of Chief Compliance Officer [FINRA Rule 3130, formerly NASD Rule 3013(a)] Annual Certification [FINRA Rule 3130, formerly NASD Rule 3013(b)] Supervisory Control System [FINRA Rule 3012] Supervisory Control Procedures Producing Managers... 9 UNDER RULE 3012, THE COMPANY IS REQUIRED TO CONDUCT A REVIEW AND TO SUPERVISE THE CUSTOMER ACCOUNT ACTIVITY OF ITS BRANCH MANAGERS, SALES SUPERVISORS, REGIONAL DIRECTORS AND ANY OTHER PERSON WHOSE JOB FUNCTIONS INCLUDE SUPERVISION. THESE TYPES OF SUPERVISORS ARE HEREINAFTER REFERRED TO AS PRODUCING MANAGERS. FINRA DEFINES PRODUCING MANAGERS AS A SUPERVISOR OF ANY KIND (INCLUDING THE PRESIDENT OF THE FIRM) WHO CONDUCT ANY AMOUNT OF CUSTOMER ACTIVITY, NO MATTER HOW LIMITED. THIS WOULD INCLUDE, FOR INSTANCE, A FEW ACCOUNTS OF FAMILY AND FRIENDS Limited Size and Resource Exception The Company is relying on the Limited Size and Resource Exception for its reviews of producing mangers under FINRA Rule The company shall ensure that it makes at least an annual certification to FINRA via Firm Gateway no later than the anniversary of the last certification if it seeks to continue its reliance on the Exception. The Company s last certification was made on October 15, If the Company determines to cease its reliance on the Exception, it shall notify FINRA promptly via the Firm Gateway. The factors used in making the determination to rely on the Limited Size and Resource Exception are the size of the Company and the number of Producing Managers. The CCO is responsible for supervision under the Limited Size and Resource Exception Office Inspections Customer Address/Objective Changes BRANCH PROCEDURES Correspondence Acceptance of Accounts Customer Suitability and Due Diligence Transactions Delivery and Acceptance of Checks and Securities Review of Accounts Customer Complaints Recordkeeping Supervision Of Associated Persons /2/2012 i

3 Advertising Anti-Money Laundering Regulation S-P: Privacy of Consumer Financial Information Insider Trading And Chinese Wall Procedures Private Placement Activities CONDUCT ON THE PREMISES OF FINANCIAL INSTITUTIONS Definitions of Rule Standards for Member Conduct Setting Networking and Brokerage Affiliate Agreements Customer Disclosure and Written Acknowledgment Communications with the Public Notifications of Terminations RISK ASSESSMENT CUSTOMER RELATIONS AND ACCOUNTS CUSTOMER RELATIONS Discretionary and Third Party Accounts Incoming Correspondence Outgoing Correspondence NEW ACCOUNTS Acceptance of Accounts Notification of Clearing Agreement Margin Accounts FINRA Rule 2341 Margin Disclosure Statement Investor Education Customer Account Statement Reminder to Customers to Report Inaccuracies CONDUCT OF ACCOUNTS Customer Order Delivery and Acceptance of Checks and Securities Review of Accounts Approved Electronic Order Entry Confirmation Disclosures CUSTOMER SUITABILITY AND DUE DILIGENCE Institutional Accounts Suitability Review CUSTOMER COMPLAINTS Complaint Investigation EMPLOYEE RELATIONS CERTIFICATION OF NEW EMPLOYEES Web CRD System Employee Records Background Check Fingerprints Requests for Examination Registration of Associated Persons Update of Form U Form U5 Termination of Employment Review of Supervisor s Qualifications Form BD Amendments Executive Representative Parking of Registrations Distribution of Procedures SUPERVISION OF ASSOCIATED PERSONS Outside Business Activities; Private Securities Transactions /2/2012 ii

4 Annual Attestation Employees of Other Broker/Dealers Outside Brokerage Accounts Gifts and Gratuities Charitable Contributions Investment Advisory Activities of Associated Persons Prohibitions Against Guaranteeing Performance Results Unauthorized Trading Mark-ups, Commission Charges, Miscellaneous Fees and Charges Front-Running of Block Transactions Charges for Services Performed Heightened Supervisory Procedures American Stock Exchange and FINRA Employees Loans between Registered Persons and their Customers FINRA Rule 5130 (formerly NASD Rule 2790) - Restrictions on the Purchase and Sale of IPOs of Equity Securities Sharing in Customer Accounts Taping Rule Holding of Customer Mail CONTINUING EDUCATION The Regulatory Element Firm Contact Questionnaire The Firm Element Needs Analysis Written Training Plan Documentation and Recordkeeping COMPLIANCE MEETINGS INSIDER TRADING AND CHINESE WALL PROCEDURES Definitions Inside Information Proprietary Information Material Information Non-public Information Securities Restricted List Employee Employee Account Employee-Related Account Behavior Guidelines for Associated Persons Specific Trading Limitations Supervision Initial Training Annual Attestation Update of Insider Trading Procedures Chinese Wall Procedures WATCH / RESTRICTED LISTS Watch List Introduction Placement of Securities on and off the Watch List Monitoring Restricted List Use of the Restricted List Prohibitions Relating to Restricted List Securities Placement of Securities on and off the Restricted List Exceptions to the Restricted List Monitoring the Restricted List REGULATORY COMMUNICATIONS MULTI-STATE REGISTRATION ACTIVITIES MARKETING/COMMUNICATIONS ACTIVITIES /2/2012 iii

5 5.1. GENERAL Recommendations DEFINITIONS Communications with the Public Advertising Sales Literature Public Appearances Correspondence Institutional Sales Material Independently Prepared Reprints TELEVISION AND VIDEO ADVERTISEMENTS LEGENDS AND FOOTNOTES GENERAL SUPERVISION OF COMMUNICATIONS WITH THE PUBLIC REGISTERED INVESTMENT COMPANY SPEAKING ENGAGEMENTS & CHAT ROOMS TESTIMONIALS LETTERHEAD AND BUSINESS CARDS SUPERVISION OF WRITTEN CORRESPONDENCE ELECTRONIC COMMUNICATIONS Supervision of Electronic Correspondence: General Principles Supervision of Bulletin Boards/Blogs Supervision of Group Electronic Mail Supervision of Individual E mail Instant Messaging SUPERVISION OF FAXES INTERNAL USE ONLY MATERIAL SIPC COVERAGE REFERENCE TO FINRA MEMBERSHIP ON THE COMPANY S WEB SITE COLD CALLING PROCEDURES National Do-Not-Call Registry Training RECORDKEEPING GENERAL RECORDKEEPING Reconciliation of Accounts SEC Rule 17a-11 Notification Web-Based FOCUS Filing System Annual Filings Monthly Filings Net Capital Computation and Statement of Aggregate Indebtedness Deficits in Introduced Accounts Preparation and Preservation of Records Clearing Agreement Fidelity Bonds Assessments and Fees Capital Withdrawals Electronic Notifications ELECTRONIC STORAGE THIRD PARTY REPRESENTATION REQUIREMENTS FOR THE USE OF ELECTRONIC STORAGE FINRA NOTIFICATION BUSINESS AND SALES PRACTICES BUSINESS ACTIVITIES Private Placements /2/2012 iv

6 Supervision Philosophy for Private Placements Concentration in Customer Accounts Suitability Procedures for Determining Accredited Investor Status No General Solicitation Offering Terms and Conditions in Accordance with SEC Rules 10b-5 and 10b Disclosure of Control SEC Rule 15c Disclosure of Interest in Distribution SEC Rule 15c Handling Customer Funds and Escrow Accounts Offering Documents, Recordkeeping, Due Diligence Files Blue Sky -Notice filings and Fee Payments Filing Requirements Approval of Marketing Materials Compensation Non-Cash Compensation Prohibition Against Payment of Referral Fees to Non-Members Publicly Offered Direct Participation Programs Suitability Disclosure No Objection Letter Compensation Roll-ups Secondary Trading Due Diligence Handling of Customer Funds Escrow Accounts Publicly Offered REITS That Are Unlisted Marketing REITs Supervision of Unlisted REITs Tax-Deferred Exchanges Suitability Disclosure No Objection Letter Offering Terms and Conditions in Accordance with SEC Rules 10b-5 and 10b Due Diligence Handling of Customer Funds Escrow Accounts SEC Rules 10b-5 and 10b Hedge Fund Activities Risks of Investing in Hedge Funds Suitability Public Offerings FINRA Rule 5110 (Formerly NASD Rule 2710) Prospectus Delivery FINRA Rule 5130 (formerly NASD Rule 2790) Restrictions on the Purchase and Sale of IPOs of Equity Securities Preconditions for IPO Sales Regulation M Supervision to Comply with SEC Rules Due Diligence Handling of Customer Funds Escrow Accounts Non-Cash Compensation Disclosure of Control SEC Rule 15c Disclosure of Interest in Distribution SEC Rule 15c Intrastate Offerings Alternative Investments (Non-Traded REITs, BDCs and Managed Futures) Investment Adviser Activity Sale of New Products TRADING ACTIVITIES Trade Reporting Order Audit Trail System (OATS) Disclosure Of Order Execution And Routing Practices SALES ACTIVITIES - PRODUCTS Mutual Fund Sales Activities /2/2012 v

7 Breakpoint Sales NAV Transfers Selling Dividends Contingent Deferred Sales Charge Prospectus Review Change of Address Signature Guarantees Suitability Redemption Procedures Prospectus Delivery Suitability for Class A, B, or C Mutual Fund Classes Late Trading Market Timing Compensation Non-Cash Compensation Receipt and Delivery of Funds Variable Insurance Products Customer Information and Suitability Selling Agreements The Sales Process Compensation Advertising Exchanges Free Look Tax Implications of Variable Products Variable Annuity Replacements Delivery of Variable Contracts Forwarding of Applications and Payments Fund Performance Variable Product Financing Training Twisting Redemption Procedures Change of Address Signature Guarantees Life Settlements Equities Short Sales Activities Limit and Market Orders Best Execution Reviews Payment-For-Order Flow Designated Securities Transactions Firms Exempt from Rule Error Account Procedures Fixed Income Securities Markup/Markdown Risk Assessment Rules Exemptions Parking Securities Adjusted Trading Churning High Yield Debt TRACE Reporting Utilize Clearing Broker Reporting System Outages Municipal Transactions Account Approval Suitability Transaction Review, Account Activity Review Markups and Markdowns Advertising, Sales Literature, and Correspondence Account Transfers Apprenticeship MSRB Rule G Books and Records MSRB Rule G-8 and Preservation of Records MSRB G Delivery of Investor Brochure MSRB Rule G-8 and G-10; Customer Complaints Transaction Reporting MSRB Rule G Fair Dealings MSRB Rule G Best Execution MSRB Rule G /2/2012 vi

8 Gifts, Gratuities and Non-Cash Compensation. MSRB Rule G Rule G Political Contributions MSRB Rule G MSRB Rule G-40 G-40 System Assessments and Fees Transactions in Below-Minimum Denominations SEC Rule 15c2-12 and Recommendations of Secondary Securities Section 529 College Savings Plans MSRB Rule G-13 Quotations Options Option Information and Approval Form Options Disclosure Document Order Ticket Approval Options Sales Literature & Communications with the Public Options Exercise Assignment and Allocation Procedures Uncovered Short Options Positions Customer Complaints Reporting of Options Positions Position Limits and Exercise Limits Discretionary Accounts Certificates Of Deposit Global Wealth Division Structured Notes Reverse Convertible Securities SENIOR INVESTORS AS PART OF THE COMPANY S ONGOING EFFORT TO SUPERVISE THE ACTIVITIES OF ITS REGISTERED REPRESENTATIVES, THE COMPANY HAS REVIEWED THE GUIDANCE PROVIDED BY THE SEC, FINRA AND THE NASAA REGARDING SENIOR INVESTORS. THE COMPANY, AFTER CAREFUL REVIEW, HAS DESIGNED THE FOLLOWING PROCEDURES ENSURE THAT ITS PRACTICES REGARDING SENIORS ARE FAIR, ETHICAL AND IN THE BEST INTERESTS OF ITS CUSTOMERS ANNUAL REVIEW OF PRODUCT MIX THE COMPANY WILL CONDUCT AN ANNUAL REVIEW OF ITS PRODUCT MIX DURING ITS SUPERVISORY CONTROL TESTING REQUIRED BY RULE DURING THIS REVIEW, THE COMPANY WILL ATTEMPT TO ANALYZE AND REVIEW THE APPROPRIATENESS OF THE PRODUCTS IT OFFERS TO ITS SENIOR INVESTOR CLIENTS. THE COMPANY WILL DEFINE A SENIOR AS ANYONE WHO IS 65 OR OLDER. AFTER CONDUCTING THIS REVIEW, THE COMPANY WILL ISSUE A REPORT TO ITS STAFF IF IT DETERMINES THAT IT WILL ESTABLISH AGE-BASED RESTRICTIONS ON CERTAIN PRODUCTS OR PRODUCT FEATURES COMMUNICATION WITH SENIORS REGISTERED REPRESENTATIVES AND MANAGERS SHOULD BE AWARE THAT COMMUNICATION WITH SENIORS IS IMPERATIVE TO A SUCCESSFUL RELATIONSHIP. REGISTERED REPRESENTATIVES ARE ENCOURAGES TO ADOPT THE FOLLOWING GUIDELINES IN THEIR INDIVIDUAL PRACTICES TO AID IN IMPROVING COMMUNICATION: INCREASE THE FREQUENCY OF CONTACT WITH SENIOR INVESTORS TO REMAIN INFORMED ABOUT THE CHANGES TO THE INVESTOR S FINANCIAL NEEDS, EMPLOYMENT STATUS, HEALTH OR OTHER LIFE EVENTS; TALK WITH INVESTORS ABOUT HAVING AN EMERGENCY OR ALTERNATE CONTACT ON FILE WITH THE COMPANY; EDUCATING INVESTORS ABOUT THE BENEFITS OF HAVING A POWER OF ATTORNEY OR SHARING THEIR FINANCIAL HEALTH INFORMATION WITH A TRUSTED FRIEND OR ADVISOR; DOCUMENTING CONVERSATIONS WITH INVESTORS IN CASE THEY HAVE PROBLEMS WITH LACK OF RECALL OR TO HELP RESOLVE ANY MISUNDERSTANDING; SENDING FOLLOW-UP LETTERS TO INVESTORS AFTER CONVERSATIONS TO DOCUMENT AND REITERATE WHAT WAS DISCUSSED; AND PROVIDING BROCHURES TO HELP INVESTORS UNDERSTAND THE INVESTMENTS SUPERVISORY ASSIGNMENT OF ASSOCIATED PERSONS REPRESENTATIONS PROHIBITED ACTS OUTSIDE BUSINESS ACTIVITIES REPRESENTATIONS OUTSIDE SECURITIES BUSINESS AND/OR TRANSACTIONS - "SELLING AWAY" REPRESENTATIONS REGULATORY COMPLIANCE CHECKLIST PERSONAL FILE INFORMATION STATEMENT OF REPRESENTATIONS PURSUANT TO MSRB RULE G COLLEGE SAVINGS PLAN DISCLOSURE DOCUMENT VARIABLE PRODUCT QUESTIONNAIRE /2/2012 vii

9 CUSTOMER ACKNOWLEDGEMENT SPECIAL STATEMENT FOR UNCOVERED OPTIONS WRITERS INITIAL MARGIN DISCLOSURE STATEMENT ANNUAL MARGIN DISCLOSURE STATEMENT UNSOLICITED LETTER FOR PURCHASE OF A DESIGNATED SECURITY AGREEMENT TO PURCHASE PENNY STOCK RISK DISCLOSURE DOCUMENT Important Information on Penny Stocks PENNY STOCK RISK DISCLOSURE DOCUMENT RECEIPT FINRA RULE 3080 ACKNOWLEDGMENT MUTUAL FUND UNSOLICITED TRADE FORM MUTUAL FUNDS BREAKPOINT DISCOUNTS BREAKPOINT CHECKLIST BREAKPOINT WORKSHEET FINRA WRITTEN SUPERVISORY PROCEDURES REVIEW CHECKLIST /2/2012 viii

10 OVERVIEW General 1.1. The Company Investment Professionals, Inc. (referred to herein as IPI and/or Company ) is a corporation, organized pursuant to laws of the state of Texas. IPI was organized to engage in securities activities, and as such, is registered with the Securities and Exchange Commission and various state jurisdictions as a broker/dealer, and is a member firm of the Financial Industry Regulatory Authority ( FINRA). The primary focus of the broker-dealer is in serving community banks throughout the continental United States ( Financial Institutions, as defined in this document below). Branches shall refer primarily to such locations in the text of this document. Those personnel supervising such branches are generally referred to as Regional Directors throughout the following text Written Supervisory Procedures IPI has adopted the policies and procedures set forth herein, and it believes that they are reasonably designed to prevent violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, relevant FINRA Rules, MSRB Rules, and the relevant securities rules and regulations of the state jurisdictions to which IPI is subject WSP Notes To File SECTION REVISED Revision to Written Supervisory Procedures 2.1 Supervisory Personnel; Heightened Supervisory Procedures 6.1 Record Keeping; 7 (Multiple Subsections) Anti-Money Laundering; Sales Contests COMMENTS FINOP N/A DATE REVISION Structured Notes N/A Acceptance of Accounts Review of Accounts 3.2.1/ Acceptance/Review of Accounts Suitability Review Markups, Commission Charges, etc. Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts OF 7/2/2012 1

11 Public Offerings Fixed Income Markups and Markdowns Municipal Transactions/ Transaction Review, Account Activity Review Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts. Reflects firm policy on feebased vs. transaction-based accounts Sales Contests/Non-Cash Comp NTM and /2/2012 2

12 SUPERVISION 2.1. Supervisory Personnel Within the office, the following people are hereby designated in writing as supervisors with their respective areas of responsibility designated. Throughout this text, they or their designees shall execute all duties described herein. These supervisory people have been selected on the basis of qualifications, i.e. specifically, licensing regulations; experience; background; and character. Each addition of a senior manager will be presented to and approved by the Board of Directors, of the Company. It is the Company's position that the proper selection and installation of supervisory personnel will be an essential factor in conducting the Company's business on a high moral and ethical plane. Full authority to enforce an associated person's compliance with the standards of conduct, both moral and ethical, will be given to the designated supervisor (hereinafter referred to as "designated person"). Periodic inspections by an Executive Committee of the Board of Directors of the Company will be conducted to ensure that each designated person is complying with the standards of this area. For all regulatory purposes, the Company's main office as listed on its Form BD is an office of supervisory jurisdiction under collective supervision of Scott A. Barnes as set out below and herein. Supervisor: Area of Responsibility : Qualifications: Jay McAnelly, CFP Series 7, 24, 63 Chief Executive Officer and President Effective: August, 2010 Annual Supervisory Certification Business Development Office Services Agreement Private Placement Activities REITS Strategic Planning Underwriting Robert Thompson Series 4, 7, 24, 51, 53 & 63 Executive Vice President; National Sales Manager; OSJ Manager Effective: February 2011 Business Development Strategic Planning Product Due Diligence Committee Co-Chair Ambassador s Council Insurance Products Richard Dullnig Series 4, 7, 9, 10, 24, 27, 31, 55, 63, 65 Chief Compliance Officer Effective: September 2009 Advertising Activities 7/2/2012 3

13 Best Execution Continuing Education Program Customer Complaints Employee Licensing Insider Trading Multi-State Registration Outside Brokerage Accounts Privacy Policy Product Due Diligence Committee Co-Chair REITS Christine Walters Series 27 FINOP Effective: September 2009 Financial and Operational Activities Brian Surovik Regional Director Region 1 Series 7, 24, 63, 65 Effective: January 2010 Acceptance of Customer Accounts Correspondence Review - Written and Electronic Municipal Securities Mutual Fund Activities Review and Endorsement of Customer Orders Supervision of Associated Persons Transaction Reviews Variable Insurance Products William Wallace Edwards III Regional Director Region 2 Series 4, 7, 24, 53, 63, 65 Effective: January, 2010 Acceptance of Customer Accounts Correspondence Review - Written and Electronic Municipal Securities Mutual Fund Activities Review and Endorsement of Customer Orders Supervision of Associated Persons Transaction Reviews Variable Insurance Products Albert Torres Retail Director & Independent Advisors Supervisor Series 7, 9, 10, 24, 51 and 66 Effective: June, 2009, February 2011 Acceptance of Customer Accounts Correspondence Review - Written and Electronic 7/2/2012 4

14 Municipal Securities Mutual Fund Activities Review and Endorsement of Customer Orders Supervision of Associated Persons Transaction Reviews Variable Insurance Products Rozanne McManus Director of Wealth Management Series 6, 7, 24, 53, 63, and 65 Effective: January, 2010 Private Asset Management (PAM) platform Other wealth management platforms Alternative investments REITS Daniel Rodriguez Director of Wealth Management Series 6, 7, 24, 63, and 65 Effective: January, 2010 Private Asset Management (PAM) platform Other wealth management platforms Alternative investments REITS William Wallace Edwards III ROSFP Series 4, 7, 24, 53, 63, 65 Effective: September, 2009 Acceptance of Customer Accounts Correspondence Review - Written and Electronic Municipal Securities Mutual Fund Activities Review and Endorsement of Customer Orders Supervision of Associated Persons Transaction Reviews Variable Insurance Products Bryan Abbott Series 7, 24, 63 Assistant Vice President of Operations; AML Compliance Officer Effective: March, 2005; January, 2007 Anti Money Laundering John Sacchetti Series 7, 24, 53, 63, 65 Director of Fixed Income and Structured Products Effective: October, 2009 Fixed Income and Structured Product Activities Government Securities 7/2/2012 5

15 Markup/Markdown Policies Proprietary Trading TRACE Reporting Designation of Offices and Branch Managers For purposes of this memorandum, the following office(s) of the Company are hereby designated as offices of supervisory jurisdiction ("OSJ"): Address: Supervisor: Main Office: Jay McAnelly San Pedro, Suite 150 National Sales Manager San Antonio, Texas For purposes of this memorandum, the following offices of the Company are hereby designated as branch offices and are non-osj offices under the direct supervision of: See attached listing The following offices of the Company are hereby designated as non-branch offices and are non-osj offices under the direct supervision of: See attached listing For purposes of this section, an OSJ shall be defined as any office of the Company at which one or more of the following functions take place: Structuring of public offerings or private placements; Maintaining of customers' funds or securities; Final acceptance (approval) of new accounts on behalf of the Company; Review and endorsement of customer orders, within certain restrictions; Final approval of advertising or sales literature for use by persons associated with the Company, within certain restrictions; Responsibility for approving the activities associated with the brokerdealer at one or more of its other branch offices; and Order execution. The Company shall designate an OSJ as it determines it to be necessary in order to supervise its registered personnel and associated persons, taking into consideration the following factors: Whether a substantial number of registered representatives conducts securities activities at, or are otherwise supervised from, such location; Whether the location is geographically distant from another OSJ of the Company; Whether the representatives of the broker/dealer are geographically dispersed; 7/2/2012 6

16 Whether the securities activities at such location are diverse and/or complex; and Whether registered persons at the location engage in retail sales or other activities involving regular contact with public customers. A branch office shall be defined as any location where one or more associated persons regularly conducts the business of effecting any transactions in, or inducing or attempting to induce the purchase or sale of, any security or holds itself out to the public as a location of business (i.e. advertising, signage, etc.), with certain exceptions. Excluded from the definition of a branch office is: (1) a location that operates as a non-sales location/back office; (2) a representative s primary residence provided it is not held out to the public and certain other conditions are satisfied; (3) a location, other than the primary residence, that is used for less than 30 business days annually for securities business, is not held out to the public as an office, and which satisfies certain of the conditions set forth in the primary residence exception; (4) a location of convenience used occasionally and by appointment; (5) a location used primarily for non-securities business and from which less than 25 securities transactions are effected annually; (6) the floor of an exchange; and (7) a temporary location used as part of a business continuity plan. Each branch and non-branch office shall be inspected according to a regular cycle (e.g., at least annually, bi-annually, etc.) as discussed in the Office Inspections section of this manual. The Company shall designate one or more appropriately registered Principals in each OSJ (a Designated Principal), including the main office, and where applicable, one or more appropriately registered representatives or Principals in each non-osj branch office with authority to carry out the supervisory responsibilities assigned to that office by the Company. A copy of this Manual, or the relevant portions thereof, shall be kept and maintained at each OSJ, Branch Office, and at each location where supervisory activities are conducted on behalf of the Company. The copy may be maintained in electronic format. The Company shall assign each registered person to an appropriately registered representative and/or principal who shall be responsible for supervising that person's activities (Refer to the Exhibit titled; Supervisory Assignment of Associate Persons ). Reasonable efforts will be used to ensure that all supervisory personnel are qualified by virtue of experience or training to carry out their assigned responsibilities Certification Of Compliance And Supervisory Procedures Appointment of Chief Compliance Officer [FINRA Rule 3130, formerly NASD Rule 3013(a)] The Board of Directors of IPI has appointed Richard Dullnig as the Chief Compliance Officer ( CCO ) in accordance with FINRA Rule 3130 (formerly NASD Rule 3013). He is so designated on Schedule A of the Company s Form BD and the Company evidences its compliance with this rule requirement by maintaining a copy of Form BD, including the supporting schedules. 7/2/2012 7

17 Annual Certification [FINRA Rule 3130, formerly NASD Rule 3013(b)] In his position as the Chief Executive Officer ( CEO ), Jay McAnelly will certify annually, that the Firm has in place, procedures to establish, maintain, review, test, and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with FINRA, MSRB and federal securities laws and regulations and that he has conducted at least one or more meetings with the Chief Compliance Officer within the last 12 months. The certification shall use the model language of Rule The meetings between the CEO and the Chief Compliance Officer are designed to (1) discuss and review the matters that are the subject of the certification; (2) discuss and review the Firm s compliance efforts; and (3) identify and address significant compliance problems and plans for emerging business areas. The Company evidences its compliance with this rule requirement by maintaining a log, memo, calendar, agenda/outline of meetings, or other similar documentation Supervisory Control System [FINRA Rule 3012] FINRA Rule 3012(a) requires the Company to designate and specifically identify to FINRA, one or more principals who shall establish, maintain, and enforce a system of supervisory control policies and procedures that: Test and verify that the Company s supervisory procedures are reasonably designed to achieve compliance with securities laws and regulations to which the Company is subject; and Create additional or amend supervisory procedures where the need is identified by such testing and verification. The Company designates Jay McAnelly as the principal responsible for the Company s compliance with 3012(a), and this document serves as evidence of the Company s compliance with this rule requirement. On an annual basis, the designated principal must submit to the Company s senior management, a written report that details the Company s system of supervisory controls, the summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results. Jay McAnelly shall maintain a copy of this report to evidence the Company s compliance with this rule requirement. A copy of the 3130 attestation and of the 3012 report, which was the basis for making the attestation, shall be provided to the Board of Directors, prior to their next board meeting or within 45 days of the production of the report, whichever occurs first Supervisory Control Procedures 7/2/2012 8

18 The Company has established Written Supervisory Control Procedures. The procedures discuss the manner in which the Company will conduct the risk assessment of its business activities, review, the changes in addresses, investment objectives and the handling of customer funds and securities. Additionally, these procedures discuss the review of the producing managers customer accounts, the use of the Limited Size and Resource Exception, if applicable, and the heightened supervision of producing managers. Another integral part of these procedures is the review of the Company s written supervisory procedures Producing Managers Under Rule 3012, the Company is required to conduct a review and to supervise the customer account activity of its Branch Managers, Sales supervisors, Regional Directors and any other person whose job functions include supervision. These types of supervisors are hereinafter referred to as producing managers. FINRA defines Producing Managers as a supervisor of any kind (including the President of the Firm) who conduct any amount of customer activity, no matter how limited. This would include, for instance, a few accounts of family and friends. A person (not necessarily a principal) who is senior to the Producing Managers must perform day-to-day supervision of their customer account activity. This senior person must not: Report to the Producing Manager; Have compensation determined in whole or part by the Producing Manager; or Be subordinate to the Producing Manager.. This senior supervisor must have the authority to oversee, direct or correct the activities of the Producing Manager, and take all necessary remedial actions, including without limitation, termination if necessary. If the Company does not have someone senior to a Producing manager, it may choose to rely on an otherwise independent person to conduct the daily reviews of the Producing Manager. The Independent Person is not required to be a registered principal, however he or she: Must not report to the Producing Manager under review; Must be situated in a different office than the Producing Manager; Must not have supervisory responsibility over the activity being reviewed (including not being directly compensated based in whole or in part on the revenues accruing for those activities); and Must alternate such review responsibility with another qualified person every two years or less. Heightened Supervision is required over the activities of the Producing Manager if the Producing Manager is responsible for generating 20 percent (20%) or more of the revenue of the business units supervised by the Producing Manager s supervisor over the course of a rolling twelve month period. For the purposes of determining the 20% 7/2/2012 9

19 threshold, the Company must look at all revenue generated by or credited to the producing manager or the producing manager s office, and that amount shall be included as part of the overall revenues of the business units supervised by the Producing Manager s supervisor regardless of the Company s internal allocation of such revenue. The Heightened Supervision is designed to avoid conflicts of interest that serve to undermine complete and effective supervision because of the economic, commercial or financial interest that the supervisor holds in the associated persons and business being supervised. Heightened Supervision may include unannounced reviews, an increased number of reviews, a broader scope of activities reviewed or having two principals review the activity. If the Company s size and resources are so limited that it cannot appoint personnel meeting all these requirements, it will have to rely on a knowledgeable principal under the limited size and resources exception. When relying on this exception, if the Firm has personnel meeting most, but not all, of the otherwise independent requirements, such as the alternation of duties, the Firm should still appoint such personnel instead of a knowledgeable principal who does not meet the otherwise independent requirements Limited Size and Resource Exception The Company is relying on the Limited Size and Resource Exception for its reviews of producing mangers under FINRA Rule The company shall ensure that it makes at least an annual certification to FINRA via Firm Gateway no later than the anniversary of the last certification if it seeks to continue its reliance on the Exception. The Company s last certification was made on October 15, If the Company determines to cease its reliance on the Exception, it shall notify FINRA promptly via the Firm Gateway. The factors used in making the determination to rely on the Limited Size and Resource Exception are the size of the Company and the number of Producing Managers. The CCO is responsible for supervision under the Limited Size and Resource Exception Office Inspections The written supervisory procedures, which address the Company s Office Inspections, are located in the Written Supervisory Control Procedures. These procedures discuss the frequency of inspections, the exam report and contents, supervisory controls and office inspections, inspectors and heightened office inspections. The Company shall inspect and make record of such inspection of each OSJ no less than annually. Additionally, any registered branch office that is not designated as an OSJ shall be inspected at least once every three (3) years. The factors used in determining this inspection cycle are the firm s size, the nature of its business, the number of offices and number of registered representatives and the regulatory history of the Company and its registered representatives. The Company shall prepare a report documenting the inspection for each office. Each report shall document the findings from the testing and verification of the Company s procedures including without limitation: Safeguarding of customer funds and securities; Maintaining books and records; 7/2/

20 Supervision of customer accounts serviced by Branch Office Managers; Transmittal of funds between customers and RR s and between customers and third parties; Special review of accounts with P.O.Boxes as the mailing address; Validation of customer address changes; and Validation of changes in customer account information. If the Company does not engage in one or more of the listed activities above, it shall document that in its report. All reports must be maintained for a period of not less than three years or as required by the SEC Books & Records rules Customer Address/Objective Changes Each customer request for his or her address to be changed on the books and records of the Company shall be made in writing to IPI by the customer. Address change requests will be relayed to the Compliance Department by the broker of record or support staff. An employee of the Compliance Department will check this written request against partner financial institution branch and/or IPI employee and associated person addresses, as well as conduct a reasonable visual check of the signature on such request, comparing it to other signature samples of the customer in IPI s records. Specifically, the employee will check whether the new address is the same as an address at which the registered representative assigned to the account resides or works or is the address of a branch office of any partner financial institution with which IPI maintains a business relationship, as described above. If such signature appears reasonably valid, the employee will transfer the request to the appropriate registered principal in the Compliance Department. The CCO or designated registered principal will approve the request in writing and relay the request to IPI s Operations Department. The account information will be updated by the Operations Department to reflect the change. If the signature cannot be verified, then the address will not be changed. Regarding customer use of P.O. boxes, while there is no general prohibition against such use, IPI discourages customers from changing their account addresses from street addresses to P.O. boxes or other locations not more clearly indicative of the their permanent home addresses, unless such customers have a valid reason such as living on a rural route where no other alternative exists for receipt of the federal mails, and the registered representative documents this fact. Address change requests to a P.O. Box are put under highest scrutiny by IPI. For such address changes, the procedures outlined above are used; in addition, written requests can have all account owners signatures notarized or the CCO or designated registered principal will directly contact the customer requesting the address change by telephone to confirm that the customer is the actual person making such request. All such phone conversations will be recorded and preserved by IPI s Information Technology Department. If the signature cannot be verified and/or the customer does not verify the address, then the address will not be changed. If such verification is obtained, the CCO or designated registered principal will approve the request in writing and relay the request to IPI s Operations Department. The account information will be updated by the Operations Department to reflect the change. Regardless of ultimate disposition of the address change request, all such requests will be kept on file at the firm s Operations Department records at Iron Mountain. 7/2/

21 The CCO or designated person, in his periodic review of account records, must ensure that address changes are made to account records. Periodic reviews of address change requests will use parameters to identify irregular address change activities (such as recurring address changes for the same account(s) or increased address change activity for individual registered persons). The officers authorized to approve customer address change requests are: Richard Dullnig Chief Compliance Officer Leon Mimari Associate Compliance Officer Maria Keiser Associate Compliance Officer If a customer requests a change to his or her investment objectives or risk tolerance, the registered representative must forward this request to the Regional Director or OSJ Manager. The RD or OSJ Manager shall send or cause to be sent, to the customer, a letter confirming this change Branch Procedures The Company s Written Supervisory Procedures Manual is applicable to all office locations, as well as the main office. A physical or electronic copy of this document shall be maintained at all offices for reference. Sections from that manual have been adapted to the Company s intended offices, and such is discussed below. These procedures apply to offices designated as branch offices on the Form BR, to offices that are designated as jurisdiction on the Form BR, to OSJs, and to locations that qualify as non-registered locations and do not have to appear on the Form BR Correspondence All correspondence dealing with the solicitation of a securities business with customers will be reviewed and approved daily by the appropriate Regional Director. If the Regional Director is not a principal, such shall be forwarded to the home office for review and approval. The documents shall be forwarded via fax, e- mail/scanning, or overnight courier. If reviewed in the home office, the correspondence shall be reviewed by the CCO or his designee. The review shall be evidenced by the reviewer s initials on the document. Correspondence includes, but is not limited to: letters, faxes, , and instant messaging. The review shall attempt to ensure that nothing is being said or represented that violates the laws, rules, and regulations of any government or SRO that has jurisdiction over the matter. Should the correspondence review detect a customer complaint, the correspondence shall immediately be forwarded to the principal identified in section titled Customer Complaints of this manual for proper handling Acceptance of Accounts Unless an office has been designated as an OSJ, the new account documents must be submitted to the main office or another OSJ for account approval and acceptance. Registered representatives shall collect the information and documentation required for the new account application/form; ensure its completeness and accuracy, sign the form as the registered person that is opening the account for the customer, and forward the 7/2/

22 documents to the main office for final approval. If the office that opens the account is an OSJ, then a qualified principal at the OSJ may accept the account on behalf of the Company Customer Suitability and Due Diligence All branch offices shall implement the same suitability measures that are discussed in the Company s Written Supervisory Procedures Manual. (Refer to the section titled Customer Suitability and Due Diligence.) As each new customer account is in the process of being opened, the registered representative is required to interview the potential new customer sufficiently to determine first and foremost which type of account would be appropriate for them to open at the Company, specifically a fee-based account or a transaction-based account, or some other arrangement suitable to the customer s needs, depending on the customer s background, present financial and other circumstances, professed needs and short-term, intermediate-term and long-term goals. The registered representative will complete all relevant and required paperwork to open the type of account which, based on the foregoing, is determined to be most suitable to the customer. As stated elsewhere in these Written Supervisory Procedures, including but not limited to Sections Review of Accounts, 3.2 New Accounts, and Suitability Review, the extent to which such an arrangement or choice remains suitable for the customer will be reviewed on an annual basis by the registered representative after a meeting or discussion with the customer and the completion of an attestation form which will be signed by the registered representative and Regional Director and forwarded to the Compliance Department for secondary review on a random basis. Any anomalies found by the Compliance Department will be reviewed with the relevant Regional Director Transactions Final approval of all securities transactions shall be forwarded to each Regional Director for approval. The transaction documents shall be forwarded via fax, e- mail/scanning, or overnight courier. The review shall be conducted by the Regional Director or his or his designee and shall be evidenced by the reviewer s initials on the transaction documents. The Regional Director shall also conduct reviews of transmittals of funds as described above, paying particular attention to any third party check or wire transfer request and requests that are being sent to a P.O.Box, regardless of whether that is the address on the customer account record Delivery and Acceptance of Checks and Securities All checks and securities that are received at any branch location shall be entered into the Checks Received and Forwarded Ledger or the Securities Received and Forwarded Ledger and shall be forwarded promptly (by noon the next business day) that they are received to the OSJ (or to Pershing, LLC) for proper handling. Branches with clearing firm deposit accounts may deposit checks received in such accounts promptly (by noon the next business day). Such deposits are also logged in a similar fashion. These procedures shall be enforced and the logs reviewed and initialed by the appropriate Regional Director. Every registered representative is responsible for completing the Checks/Securities Received and Forwarded Ledger on a daily basis. Within 5 business days following the month end those Ledgers shall be forwarded to the Regional Director 7/2/