Joel Davidson, a lawyer in Orangeburg, N.Y., who represented John Leighton, said it was clear that the strength of the compliance program influenced the council's decision.
Situations in which one family member supervises another are "rife with conflict," said Mark Egert, chief compliance officer at Cowen & Co. in New York. The practice isn't prohibited on its face, however, and is common, particularly at smaller brokerages, he said. "Sometimes, by necessity, it's the only choice you have," said Egert.
An independent third party, such as a consultant or unrelated employee, should review the supervision and its effectiveness periodically to alleviate potential concerns of regulators, said Egert. The practice also conveys to other employees that family members have to follow the same rules, he said.
An effective supervisory relationship between family members, however, often comes down to integrity. The answer to one simple question, said Egert, can measure that quality: Is a supervisor willing to put the firm and his clients above blood?
Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.