SIFMA issued a set of best practices that provides guidance to broker-dealers on engaging and interacting with expert networks and their associated consultants who provide information that might be useful in forming investment views and in making investment decisions. And, if you need a refresher on this topic, here's an overview:

Expert networks are entities that refer paid industry professionals ("consultants") to third parties for a fee.  These consultants provide third parties – including broker-dealers – with information, advice, analysis, market expertise, or industry expertise for use in formulating investment views and in making investment decisions.

Recently, the role of expert networks has come under scrutiny by regulatory and law enforcement authorities.  Since expert networks provide a valuable role to the financial industry, it is important that market participants seek to ensure compliance with established law and regulations, and avoiding incidences where those laws and regulations are broken.

"Expert networks have increasingly gained prominence in our financial system and can assist broker-dealers in designing and implementing their investment strategies," said Ira Hammerman, senior managing director and general counsel at SIFMA.  "By issuing these best practices we seek to provide our members with guidance in complying with existing laws and regulations, and avoiding the appearance of impropriety.  We look forward to continuing to work with our members on implementing these best practices." SIFMA’s best practices include:

• Core Assessment.  Develop pols and implement procedures concerning the use of expert networks and the consultants identified by the expert networks.
• Training. Provide training for employees and other affected individuals who interact with expert networks.
• Role of Firm Supervision. Systems of supervisory oversight should be designed with a view of securing an understanding of a firm’s use of expert networks and their associated consultants.
• Firm Monitoring and Oversight. Develop pols and procedures, or supplement existing pols and procedures that require firms to escalate for review and take appropriate action on “red flags” that become known to the firm.
• Agreement Between the Firm and Expert Network. Seek out written agreements with expert networks for repeating and/or substantial arrangements.
• Advising Consultants of Firm Policies. Develop procedures on a risk-assessed basis for directly advising consultants associated with expert networks on firm’s policies regarding the use of material non-public information and confidential information, at the outset of any new engagement of a consultant.
• Additional Firm Policies and Controls. Develop procedures for obtaining from the expert network or a consultant, relevant and non-confidential information regarding any employment and/or other arrangements where the consultant may have access to material non-public information and confidential information.

SIFMA also advises firms to consider whether the best practices may have applicability to situations where firms have direct relationships with consultants. For further details, go to:   [SIFMA News Release, 9/29/11] and [SIFMA Expert Networks Site Page].