I am the compliance officer for a midsize broker-dealer. One of our supervisors is dually registered with an RIA firm. We are aware of the dual registration and have approved it. However, the individual is also responsible for supervising the activities of the investment advisor representatives of the RIA [who are not registered reps with our brokerage firm]. Since this individual is also a supervisor for us, to what extent might we be held liable if one of the IARs at the RIA does something wrong?
Generally, your brokerage firm should not be held responsible if this supervisor, who also supervises IARs at an unaffiliated RIA, is negligent in his supervision of those IARs. The two key points are that your brokerage firm and the RIA are truly unaffiliated and the IARs are not dually registered with your firm. In such a situation, the advisory activities the IARs are engaged in are separate from the brokerage services provided by your firm. Therefore, the supervisory responsibilities of your employee are likewise separate and distinct and any failure to supervise the IARs on his part should not spill over.
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