Funny about Money

The only thing necessary for the triumph of evil is for good men to do nothing. ―Edmund Burke

Check Up on Your Financial Adviser

 What do you know, really, about your financial adviser? Did you realize that America has more than 650,000 registered financial advisers, of whom 7% were disciplined for misconduct between 2005 and 2015, to the tune of a median repayment to customers of $40,000? About a third of these were repeat offenders, who are five times more prone to misconduct than average (Mark Egan, Gregor Matvos, and Amit Seru, “The Market for Financial Adviser Misconduct“).

It’s hard to know how to assess a financial adviser, at least not without using the person’s services over a lengthy period. But you can check up on a prospective adviser’s track record: FINRA runs a website called BrokerCheck. The site reports on whether a broker or brokerage firm is registered with FINRA, information that has been disclosed to regulators, the person’s work history and the brokerage firm’s history, and what the broker or firm is qualified to do based on exams and state licenses.

As financial tools go, this one falls into the don’t-leave-home-without-it category.

Naturally, as soon as I found out about it, I looked my guy up. Squeaky clean. His firm: a congregation of saints. His boss: platinum-plated.

So that’s good.

Out of idle curiosity, I looked up a friend who’s a financial adviser. I don’t  use his services because he’s paid by commission only and because he also sells insurance, both circumstances that invite conflicts of interest.

Lo! Up pops mention of bankruptcy proceedings. In the context it looks like a Black Blot. One wonders, though. There’s nothing like a divorce in the middle of the worst recession since the Great Depression to run you into the hole. So it hardly seems fair to assess the guy on that criterion.

Still: forewarned is forearmed. If you actually were in the market to do business with a financial adviser whose record included a bankruptcy or default, it would be worth asking about it.

Be sure to check the person’s employer or firm as well: My friend’s firm has had 22 “disclosure events” and 11 arbitrations. Some of these are very serious. Example:

WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO THE SANCTIONS AND TO THE ENTRY OF FINDINGS THAT SINCE AT LEAST JULY 1, 2009, IT HAS DISADVANTAGED CERTAIN RETIREMENT PLAN AND CHARITABLE ORGANIZATION CUSTOMERS WHO WERE ELIGIBLE TO PURCHASE CLASS A SHARES IN CERTAIN MUTUAL FUNDS WITHOUT A FRONT-END SALES CHARGE. THE FINDINGS STATED THAT NOTWITHSTANDING THE AVAILABILITY OF THE WAIVERS, THE FIRM FAILED TO APPLY THE WAIVERS TO MUTUAL FUND PURCHASES MADE BY ELIGIBLE CUSTOMERS AND INSTEAD SOLD TO THEM CLASS A SHARES WITH A FRONT-END SALES CHARGE OR CLASS B OR C SHARES WITH BACK-END SALES CHARGES AND HIGHER ONGOING FEES AND EXPENSES. THESE SALES DISADVANTAGED ELIGIBLE CUSTOMERS BY CAUSING SUCH CUSTOMERS TO PAY HIGHER FEES THAN THEY WERE ACTUALLY REQUIRED TO PAY….

THE FIRM WAS CENSURED AND REQUIRED TO PAY $602,322, INCLUDING INTEREST, IN RESTITUTION TO ELIGIBLE CUSTOMERS.

 Holy sh!t. That’s just one of the 22 disclosures…

FINRA RULE 2010, NASD RULES 2110, 3010: THE FIRM FAILED REASONABLY TO SUPERVISE, A REGISTERED REPRESENTATIVE ASSOCIATED WITH THE FIRM. THE FIRM HAD PLACED THE REGISTERED REPRESENTATIVE ON HEIGHTENED SUPERVISION WHEN HE REGISTERED WITH THE FIRM. DURING THE TIME HE WAS ON HEIGHTENED SUPERVISION, THE REGISTERED REPRESENTATIVE MISAPPROPRIATED APPROXIMATELY $122,000 FROM A CUSTOMER ACCOUNT. THE FIRM FAILED TO CONDUCT A MEANINGFUL REVIEW OF THE REPRESENTATIVE’S ACTIVITIES IN CONNECTION WITH THIS CUSTOMER’S ACCOUNT…

CENSURE
MONETERY/FINE: $50,000

Wow!
And Great Galloping Poorhouse Residents, Batman! It gets better!

NASD RULES 2210, 2211, 2110 AND 3010: RESPONDENT FIRM OFFERED ITS CUSTOMERS A FEE-BASED BROKERAGE ACCOUNT, AND RATHER THAN PAYING A COMMISSION ON EVERY TRADE MADE IN THE ACCOUNT, CUSTOMERS PAID AN ANNUAL FEE BASED ON THE TOTAL VALUE OF ASSETS IN THE ACCOUNT. RESPONDENT FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM REASONABLY DESIGNED TO REVIEW AND MONITOR ITS FEE-BASED BROKERAGE BUSINESS. NEITHER RESPONDENT’S PRACTICES IN SUPERVISING ACCOUNT, NOR ITS WRITTEN PROCEDURES FOR A FEE-BASED BROKERAGE ACCOUNTS WERE ADEQUATE. AS A RESULT OF DEFICIENCIES IN THE FIRM’S SUPERVISORY SYSTEMS AND PROCEDURES, RESPONDENT ALLOWED CUSTOMERS TO OPEN AND CONTINUE IN A FEE-BASED ACCOUNTS EVEN IF THE ACCOUNTS WERE INAPPROPRIATE FOR THE INVESTORS IN LIGHT OF THE FEE-IN-LIEU OF COMMISSION STRUCTURE, THE $1,000 MINIMUM ANNUAL FEE, OR THE REQUIRED $50,000 MINIMUM IN ASSETS. AXA COLLECTED FEES FROM THOSE ACCOUNTS AFTER THE ACCOUNTS WENT A FULL YEAR WITH NO TRANSACTIONS, IMPOSED FEES EVEN IF THE ACCOUNT STAYED BELOW THE MINIMUM ASSET LEVEL FOR A YEAR, AND CHARGED ASSET-BASED FEES FOR THOSE ACCOUNTS BEFORE THE ACCOUNTS EVER REACHED THE MINIMUM VALUE THAT WAS SUPPOSED TO TRIGGER THE ASSET-BASED FEE. AXA DISTRIBUTED INACCURATE AND MISLEADING SALES LITERATURE, PUBLIC COMMUNICATIONS, INSTITUTIONAL SALES MATERIAL, AND INTERNAL COMMUNICATIONS IN VIOLATIONS OF NASD RULES 2210(D) AND 2211(D).

FIRM IS CENSURED, FINED $1,200,000, ORDERED TO PAY $1,391,427, PLUS INTEREST IN RESTITUTION AND REQUIRED: WITHIN 90 DAYS TO COMPLETE THE REMEDIATION PROCESS TO CUSTOMERS REQUIRING REFUNDS; WITHIN 120 DAYS FILE A REPORT PROVIDING A DETAILED LISTING OF ALL QUALIFYING CUSTOMERS; AND TO DISCONTINUE OF ALL OF ITS FEE-BASED BROKERAGE BUSINESS….

This stuff goes on and on and on.

And how about my guy’s firm?

Nothing. Zero. Nil. Nada. No complaints.

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Author: funny

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2 Comments

  1. I’m relieved that your financial advisor and his firm checks out okay, Funny, but sorry that you found so much negative info on your friend and his firm. I read an online article a few years ago that claimed that sociopaths are attracted to careers in finance. Must have been a LOT of them working on Wall street when the Great Recession hit. Add that to the fact that so many Americans are woefully ignorant about money and you have the perfect storm, so to speak.

    • LOL! I’m afraid my friend is not a sociopath, boringly enough. He’s actually a very sweet man. His employer…maybe not so much, but he acts like he’s mighty glad to have a job with them. And he does work very hard. He’s kind of a natural salesman, so I suspect he’d be successful in just about any position that requires sales skills. In the present case, though, he’s convinced he’s providing a valuable service for his clients, and this really keeps him fired up.