David M. Sanderford knows that even simple mistakes can cost banks millions-and that incipient problems are often known to line employees but not to management.
So Mr. Sanderford, a lawyer who for 15 years has focused on the distribution of financial products through banks, has designed ProtectLine, a service to help banks identify compliance-related problems.
Starting Feb. 1, bank and brokerage employees whose institutions subscribe can use a toll-free number to report concerns anonymously about their company's investment sales practices or about a specific broker.
In response Mr. Sanderford would write up an incident report, classifying the concern as sensitive, probably not sensitive, or not sensitive and send it to the bank's compliance department.
Mr. Sanderford said his service would help banks avert costly legal actions. "It is very low-cost, and the bank employee can choose whether or not to use it," he said.
Mr. Sanderford formed Maxford Co. in Dallas last November to offer banks ProtectLine and other compliance-related products and services. He said recent articles on compliance pitfalls helped persuade him that the time was right to found his own company.
Previously he headed bank sales for Life Insurance Company of the Southwest, a unit of National Life of Vermont. He has also done stints at Aetna of Hartford, Conn., and Great Northern Annuity in Seattle.
ProtectLine would help shield banks from punitive damages, as well as class actions, Mr. Sanderford said. And the information culled from the service would probably not be admissible in court, he said, because it would be considered an attorney's work product.
Mr. Sanderford said he plans to charge a monthly fee based on the number of employees who are given the toll-free number. He said it could be as low as $295 a month for up to 20 employees.
Observers said ProtectLine would probably be most attractive to very large banks with salespeople scattered over several states.
It is "one of a number of products that I think a wise organization would use to make sure the rules are being followed throughout the entire organization," said James P. Rensel, president of Q-Group Research Inc., Tempe, Ariz., a market research and consulting firm.
Mr. Rensel said he plans to promote ProtectLine to his bank clients as a tool to help monitor compliance.
Nonetheless, some bank brokerage chiefs said they would not be interested in ProtectLine because they keep a close eye on compliance.
Ed Hipp, president of the securities arm of Centura Banks Inc., Rocky Mount, N.C., said the service would not be necessary for his 31 full-time salespeople and 70 other employees who double as bankers and brokers.
"By having something like that in place, it's almost creating a paranoia, it seems to me," he said.
