ACME Investment Associates is a large broker dealer firm located in an East Coast city.They provide both financial advisory services and standard broker dealer services. As dealers they buy and sell for their own accounts; as brokers they execute client trades.ACME is not a Registered Investment Advisor and therefore it and its staff are not fiduciaries.ACME is a member of FINRA and many of its staff are licensed FINRA members as well.

Up until 2019, ACME has been held to the regulatory standard of "Suitability."With the issuance of Regulation - Best Interest (Reg-BI) in June, they will now have to adapt their practices to the requirements of that rule.In addition, they will have to maintain and file Form CRS as well as provide a copy to all of their clients and to any prospect upon request.

ACME is organized as a public company most with a majority ownership held by a Netherlands banking firm with a number of global subsidiaries in the financial services arena.The Board of Directors consists of nine individuals four of whom are insiders: the CEO of ACME, the General Counsel (head of the legal department), and two senior executives of the parent bank, who are also on the board of the parent bank.

Operations are divided into a number of departments:

1.Management

a.The CEO - Harold Anski

b.The Management Committee

i.Harold Anski (CEO)

ii.Mario Savio (General Counsel - head of the legal department and administrative head of Internal Audit)

iii.Maria Dwyer (CFO)

iv.Arnold Doorman (COO)

v.Andrea Oronowitz (CCO)

vi.Morris Bonneville (SVP of Sales and Marketing)

vii.Barbara Offet (SVP Investment Operations)

viii.Mohamed Ba (CRO)

2.The Departments

a.Operations under Arnold Doorman (COO)

i.IT

1.Trading Systems

2.Compliance Systems

ii.Facilities

b.Compliance under Andrea Oronowitz (CCO)

i.Compliance Training (four individuals who maintain and deliver new employee training and periodic refresher training.

ii.Compliance Monitoring

1.Clients and Client agreements (two individuals who monitor client information and agreements to ensure that suitability requirements are understood)

2.Trade Monitoring (three individuals who set up compliance rules in the trade systems based on regulatory and client requirements and who monitor these systems)

3.Compliance Reporting (two senior compliance analysts who monitor the all compliance reporting and prepare a monthly summary for the board.)

4.Sales and Marketing compliance (five individuals responsible for reviewing all sales and marketing materials as well as submission of new marketing templates to FINRA for review.)

iii.Regulatory monitoring (one individual who monitors SEC.gov, FINRA.org and other relevant materials on an ongoing basis to alert the firm to regulatory changes, actions or concerns.

c.Sales and Marketing under Morris Bonneville (SVP Sales and Marketing)

i.Marketing (a group of eight individuals dedicated to developing new marketing strategies and sales ideas - all such materials are submitted to Sales and Marketing Compliance)

ii.Retail Marketing and Sales (three individuals dedicated to vetting and striking deals with Retail fund companies which ACME will then add to their list of approved Funds)

iii.Sales (one or more individuals in each branch office dedicated to market research and outreach and to identifying potential clients and soliciting their business)

iv.Fulfillment (eight individuals responsible for sending out sales and marketing materials, client statements and reports and required regulatory documents - including filing with the regulators as required.

v.Financial Advisors (staff within the main and branch offices who interface directly with the clients and work closely with the sales staff to provide new and existing customers with advice and recommendations, as well as taking their instructions on managing their assets.These individuals provide the other departments especially compliance with client profiles and they negotiate and execute client agreements which are also reviewed by compliance and the legal department.Client documentation is maintained on paper forms which are filed but also scanned and available on line. The FAs are able to execute transactions on retail funds and they communicate buy and sell orders for specific securities to the Trade Operations staff.)

d.Investment Operations under Barbara Offet (SVP Inv Ops)

i.Trade Operations

1.Equity Traders and Trade Associates (several individuals who execute orders for specific securities as communicated from the Financial Advisor group.)

2.Fixed Income Traders and Associates (perform the same function for fixed income securities)

ii.Trade Oversight (three individuals who prepare monthly reports on commissions and best execution)

e.Enterprise Risk under Mohamed Ba (CRO)

ACME's Business Model

ACME provides basic financial advisory services tailored to each client's preference.They provide standard stock brokerage services and they will often sell clients securities from ACME's own portfolio (acting in this manner as a dealer).

ACME vets Retail Fund companies as additional vehicles for their clients.They offer clients selection from a limited universe of funds - those which they believe are well managed and have solid long term prospects.Many of the funds offered have up front or trailing sales charges from which ACME often draws a sales commission.

Sales staff are compensated on a commission basis for each client they bring in.These commissions are based either on the commission business the client generates through their trades or, in the case of asset based fees agreements, a portion of the fee collected by ACME.Sales commissions however calculated are paid over the first three years of the client's relationship.

Financial advisors are paid a fixed salary which is based retroactively on the size of their portfolio of client assets.They also receive income from client commissions.Sales and Financial Advisory staff in the branch offices are often one and the same individual and so they may participate in multiple streams of income.

The firm in the past has offered multiple incentives to sales and financial advisory staff:

1.Bonuses for generic sales quotas.Depending upon the seniority of each individual and the size of their client portfolio, they are paid bonuses for sales and commission volumes above a defined threshold.These are calculated quarterly and paid out over the subsequent four quarters.

2.Bonuses for meeting quotas for specific securities.As a dealer, ACME will accumulate inventories of specific issues.If for one reason or another, they will to decrease specific exposures, they will offer increased commissions for staff who are able to sell these issues to their clients.

3.In some cases, fund companies will offer additional payments or an increased share of sales charges for specific funds.ACME will pass on a portion of these payments to staff who make these sales.

4.Annual Sales Contest - ACME divides is sales channels up into five asset class and vehicle type categories.Each year the individual who generates the greatest volume of revenue in each category receives a significant year-end bonus. Each year, one of the five channels is defined at the "premium channel" and the winner in that channel also receives a luxury vacation for two at a five star venue.

The Systems Environment

ACME's trading and trade compliance environment is fully electronic and the systems are well maintained and are the latest versions of tools considered among the best of breed in the industry.

Client financial records are based on portfolio inventory system that receives data from the trading systems and from the external systems of the Fund complexes with which ACME has established relationships.This system generates client statements and, for the asset fee based accounts, supports client billing.

In Sales and Marketing, the systems environment is a mixed bag.The staff who design sales and marketing templates have the latest MAC based graphic design equipment, however these systems do not always interface well with the PC based network that the rest of the firm works on.

Financial Advisors input retail trades directly onto the Fund's online systems or through third party transaction entry platforms.ACME is dependent upon return data feeds from these sources to capture the data.

Client data management is the least automated.Sales and Financial Advisor staff have resisted centralization of data other than client portfolio and transaction reports.This is a common phenomenon in the industry as individuals come to think of their portfolio of clients as a sort of personal property rather than as a corporate asset.

For regulatory reasons, the FA's have to file data on client profiles and client agreements, but these are documents that are typically scanned to be stored electronically.ACME has long been aware of the inadequacy of this approach and recently management put its foot down and opened an initiative to implement a Client Relationship Management (CRM) system.The team led by the head of operations has identified an excellent system and the design phase for implementation had just begun when Reg-BI was approved.

The Business Problem

1)The CRO must risk rank each control and identify those which ACME will deem to be key controls.