Readers React to Rogue Broker Stories
Don’t get us wrong. The industry does have a rogue broker recidivist issue.
Just read through a week’s worth of disciplinary actions on Finra’s enforcement website to get a sense of what kind of misbehavior goes on regularly in the industry. The issue was highlighted in this academic working paper that found 44% of brokers fired for misconduct finding re-employment as brokers within a year of their terminations.
But there are at least two sides to a story, and we’ve received a rush of commentary arguing that a blot on a broker’s record should not necessarily connote a bad character. Here is some of what we heard, not all of it flattering to us:
“There are many of us on the [wrong-doers’] list who are victims of compliance departments,” a former Merrill Lynch broker in the western United States told us. “It’s a culture of never admitting wrongdoing but shifting blame to brokers for issues with clients that were solely due to compliance mistakes and errors.
“I sent a customer complaint of Unauthorized Trading [to compliance] in an account that was totally managed by BlackRock…It was completely impossible for me to enter a trade in the account, which performed very well in the down market of ‘07-’09, and I was not part of any of the mediation/arbitration sessions [between the client and Merrill].
“I paid nothing in the settlement. ML has fired the compliance officer who received my forward of the complaint letter and who told me I could not bring a lawyer to tell my side. I am now sitting with a complaint [on Finra’s BrokerCheck] that says ML paid $215,000 to settle the complaint..
I have no idea what the settlement terms are and have been told I have no right to see them because I am not part of the settlement. But I am the one who appears to be on the wrong side of the ledger….Your stories [on the study] suggests that all who have a complaint filed against them are guilty. Not the case.”
A manager at Janney Montgomery Scott writes that he is “shocked” at how few people in the public, the industry and the press really understand the financial services industry or the subtle managerial complexities of “navigating the turbulent waters of servicing clients, supervising advisors and making sure that the process is fair for all parties.”
He recounted the tale of a very aggressive client who watched his technology-heavy stock portfolio zoom to about $2.1 million from $150,000 in the late 1990s tech bubble. The client filed an arbitration claim for almost $2 million when the tech bubble burst in 2001 and his portfolio fell below its starting point..
“Along the way, my advisor had suggested taking profits, writing covered calls and buying puts. Each time the client refused,” the Janney manager wrote. “He knew better….The $200k the advisor had managed to put into cash was all that remained, but there is a complaint on the broker’s record of responsibility for a $2 million loss.
“There are advisors who need to be taken out of the business, but there are also complaints that tarnish the records of good producers,” the Janney veteran said. “Unfortunately, complaints do not equal true measure of an FA’s honesty.”
He also said that many advisors who can turn into good stewards of client money are too often driven out of the industry by self-doubt and scorn. “There are advisors who were learning their craft in the market turmoil of 2008 and 2009 and have dings on their records but who are now great producers,” he writes. “It would be nice if there were someone who knew what they were talking about when reviewing “academic research.”