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#713860 - 04/10/07 02:01 PM NDIPs and referrals
misha Offline
Member
Joined: Jul 2006
Posts: 56
Curious about exactly which products are covered by the interagency statement - specifically as it relates to paying referrals to bank employees. I know that broker-dealer type transactions are covered by the "$25 or less" rule - what about our Trust Department? Does it matter if it's fiduciary or advisory?

Recently cited by the FDIC & want to make sure we get it right.

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General Discussion
#714193 - 04/10/07 07:06 PM Re: NDIPs and referrals misha
KSK Offline
Gold Star
KSK
Joined: Jul 2001
Posts: 357
Kansas
Nondeposit investment products are products that you are selling to a customer. These may include but are not limited to mutual funds, annuities, insurance, individual equity securities, etc.

These are investments that are frequently sold by a registered broker dealer. The payment of incentives for the promotion of these products is regulated by the NASD and others. The payment of incentives for the promotion of these products is also addressed in the December 2006 issuance of Proposed Reg R by the SEC.

Investment securities, stock, bonds, mutual funds, etc purchased by a trust department when acting as investment agent or as trustee are not, in my opinion, covered under by the Interagency Guidance of the Sale of Non-deposit Investment Products. The difference as I understand it is that the bank is not "selling a product" it is investing in an asset that the investment activity is governed under separate regulatory and state statutory requirements.

The typical trust department that I am familiar with exercises discretionary authority and therefore isn't selling anything directly to the client. Admittedly it's a fine line, but the financial services industry is full of fine lines that we all manuver daily. This is just another one of them.

As for the payment of incentives for the referral of trust business. I say that...IF the trust department is a division of your insured financial institution and NOT a separate corporate entity either by way of a subsidiary or affiliate, then the payment of incentives for that business is goverened only by what your specific state statue may require and your internal business model and profitability. It is not governed as a NDIP.

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#714306 - 04/10/07 08:49 PM Re: NDIPs and referrals KSK
misha Offline
Member
Joined: Jul 2006
Posts: 56
Thanks so much for the response - our Trust Department is part of our bank - today. They will have their own separate charter in July - will our referral program be affected by this when they are an affiliate?

Our plan is to move our Wealth Products group (actual sales of insurance and investments through a broker/dealer) out of the referral program - other than a possible $25 for sending a name.

Again - thanks for the advice - it's very helpful!

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