Topic 2: Developing Policies and Procedures and Mitigating Risks

To effectively manage risks, it’s recommended to implement a comprehensive set of standardized policies and procedures that provide specific guidance on how to mitigate risks. In this course, we will discuss this further, focusing on the broker’s responsibilities and role in this area. It’s crucial to communicate the types of risks that the company faces and the necessary steps to reduce them to ensure that everyone in the brokerage is aware of the risks and how to mitigate them.

Establishing such policies and procedures helps create a vision for the company, outlining expectations for how the company will conduct business and meet consumer needs. It also provides guidelines for employees and independent contractors, reducing confusion and providing specific parameters for everyone to follow. By doing so, everyone knows what’s expected and has a sense of ownership.

Successfully minimizing risk exposure depends on the broker’s willingness to ensure that everyone complies with the company rules. Policies and procedures must be written and accessible to every team member, with training conducted to ensure that everyone understands and follows them accurately. When everyone is trained to follow established policies and procedures and the broker shows commitment to enforcing them, the benefit is that it provides evidence of the broker’s dedication and shifts liability to those who may violate them without the broker’s knowledge.

It’s important to have legal counsel available to turn to in a crisis, and it’s recommended to meet with them regularly to review the brokerage’s practices and policies. To make the most of the time with this costly consultant, brokers may plan on quarterly meetings and keep a list of any questions that arise between meetings.

Proper Supervision

It is essential for brokers to provide adequate oversight of their affiliated salespeople, unlicensed assistants, and other staff, as any inappropriate behavior on their part has the potential to impact the broker, the firm, and the firm’s clients.

An example of the importance of broker supervision over affiliated salespeople is the case of an employing broker who faced potential charges due to the wrongdoing of a salesperson under her supervision. The salesperson, referred to as Derek, had collected advance fees from two clients for loan modification services and deposited the fees into his personal bank account without performing any services or providing refunds. The employing broker was unaware of Derek’s actions and had not authorized him to engage in loan modification transactions. As a result of Derek’s deceptive conduct, the Department of Real Estate (DRE) revoked his salesperson license for failing to follow regulations, including collecting advance fees without an approved fee agreement and not depositing fees into a trust account. Derek also provided no evidence of rehabilitation. However, the accusation against the employing broker was dismissed as she had no prior knowledge of Derek’s misconduct and had no reason to suspect it. This example highlights the importance of broker supervision to prevent potential legal repercussions for the broker, the firm, and clients.