According to FINRA, Michael Burton Ohlemacher was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months for engaging in an insurance-related outside business activity without providing prior written notice to his member firm.
Ohlemacher referred both firm clients and non-clients to an insurance company not affiliated with his firm's insurance affiliate, earning over $94,000 in commissions. This substantial income stream was generated entirely outside his firm's knowledge and supervision. Ohlemacher never disclosed this outside business activity in writing to his firm or its insurance affiliate, nor did he receive firm approval as required by FINRA rules and firm policies.
The violations were compounded by Ohlemacher's false attestations on annual compliance questionnaires, where he falsely certified that he had disclosed all outside business activities. These questionnaires are critical compliance tools that firms use to monitor their representatives' activities and identify potential conflicts of interest. By providing false information, Ohlemacher undermined his firm's compliance program and prevented proper supervision.
Insurance sales by securities representatives can create significant conflicts of interest, particularly when conducted outside firm supervision. Representatives might be incentivized to recommend insurance products that generate higher outside commissions rather than securities products that might better serve clients' needs. They might also fail to disclose compensation arrangements or the existence of affiliated products that could be more appropriate. Additionally, unsupervised insurance sales may not be subject to the same suitability and disclosure requirements that apply to securities transactions.
This case emphasizes the importance of full disclosure of outside activities and truthful compliance attestations. The three-month suspension reflects the substantial income earned, the involvement of firm clients, and the false compliance certifications. Investors should ask their advisors about all sources of compensation and whether insurance recommendations are made through the advisor's firm or through outside arrangements.
