by Bill Singer
On October 18, 2012, “Street Sweeper” published “ Wells Fargo Blindsided In Trainee Fee Loss.” This is an updated and expanded version of that column.
I’m telling you now, up front, there isn’t much meat on this bone. FINRA’s Arbitration Decision simply tells us who sued whom for what and then renders a decision.
Challenger De Vasto
Bill Singer
If it were a professional fight, you’d know that there was a guy in the red corner and a guy in the blue corner and the blue guy won. No idea of the rounds. No idea as to how many blows were thrown. Nuthin’. Nada. Zippo. In the Matter of the FINRA Arbitration Between Wells Fargo Advisors, LLC, Claimant, vs. Lynn Anne De Vasto, Respondent (FINRA Arbitration 12-01739, October 16, 2012).
Here’s about all that I can tell ya.
In Claimant Wells Fargo Advisors, LLC corner was Archie Capinguian, Esq., of the law firm of Lubiner & Schmidt, LLC, Cranford, NJ. In the other corner was Respondent Lynn Anne De Vasto, appearing pro se – let’s say she’s the challenger and somewhat out of her weight class. There’s no smart money on her.
Wells Fargo, the odds-on favorite in this match, filed an Arbitration Statement of Claim in May 2012, alleging that its former associated person De Vasto had breached her Supplementary Training Agreement. The feisty De Vasto denied the allegations and asserted various affirmative defenses. At stake was a $25,000 purse in the form of Claimant’s alleged damages plus unspecified demands for interest, attorneys’ fees, costs, and whatnot.
The match was held before a sole FINRA Arbitrator.
And The Winner Is . . .
Ladies and gentleman, the winner and new champion: Respondent De Vasto. Claimant’s claims were knocked out in their entirety.
Turnaround Is Fairplay
All of which brings us to a variation on the “Groundhog Day” theme of deja vu.
Challenger Davis
In Claimant Wells Fargo Advisors, LLC corner was Archie Capinguian, Esq., of the law firm of Lubiner & Schmidt, LLC, Cranford, NJ. In the other corner was Respondent Harry Davis, appearing pro se – let’s say he’s the challenger and somewhat out of his weight class. There’s no smart money on him.
Wells Fargo, the odds-on favorite in this match, filed an Arbitration Statement of Claim in May 2012, alleging that its former associated person Davis had breached his New Financial Advisor Training Agreement. The feisty Davis denied the allegations and asserted various affirmative defenses. At stake was a $25,000 purse in the form of Claimant’s alleged damages plus unspecified demands for interest, attorneys’ fees, costs, and whatnot. Wells Fargo Advisors, LLC, Claimant, vs. Harry Davis, Respondent (FINRA Arbitration 12-01738, October 19, 2012).
The match was held before a sole FINRA Arbitrator.
And The Winner Is . . .
Ladies and gentleman, the winner and still champion: Claimant Wells Fargo. Respondent Davis was found liable and ordered to pay to Claimant Wells Fargo $25,0000. Also, Respondent was ordered to reimburse Claimant $1,050 for its FINRA filing fee.
Bill Singer’s Comment
Two fights. The same favorite. Two out-of-their-class challengers. Two trainee agreements. About the same in damages sought. In one match, the pro se challenger fights the gritty bout and emerge victorious; but in the other match, the outcome is reversed. Why? Who knows — it just goes to show you that on any given day at a FINRA arbitration anything is possible.
Once upon a time, when Wall Street was rolling out the hiring carpet, major brokerage firms offered Employee Forgivable Loans to top producers and had trainee programs for wannabes.
In more recent years, as Merrill Lynch, Bear Stearns, Lehman Brothers, Smith Barney, JP Morgan, and UBS fell upon hard times, those enticements faded. Moreover, those who walked upon Wall Street’s cushy welcome mat and into an entry-level job or highly compensated stockbroker position, often found themselves in a hostile work environment and, if they found themselves forced out or decided to quit, often on the receiving end of hardball collection efforts for the balances of EFLs or trainee fees. In many of these collection efforts, the former employers acted responsibly and were entitled to recoup their outlays or costs; other times, however, the whole collection effort took on unsavory overtones of victimizing folks who were laid off or forced out through no fault of their own.
By and large, I hate — perhaps I should add “detest” — these Wall Street Training Fee cases. The theory behind this practice is that a brokerage firm invests its time and money training raw globs of clay into becoming high-powered, professional stockbrokers. Depending upon the training agreement, the bargain is that the firm bestows the benefits of all that fine training upon you with the understanding that you will remain employed for at least a certain period of time (as set forth in your Training Agreement).
The inherent threat in the training arrangement is that if you leave before the expiration of the term, you must repay the training costs. How much do you have to repay? To supposedly make matters simple in the event of litigation, your employer graciously sets a valuation for the repayment of the training in the Training Agreement — and it’s often some whopping figure like $75,000.
Now, don’t get me wrong, I sort of understand why this punitive practice exists. Brokerage firms figure that any number of their competitors would just love it if someone else would pick up the training costs for all the newbies. Sure — let someone else triage through the numbskulls and weed them out, let someone else teach the basics of what’s a stock and what’s a bond, and let someone else incur the risk if the kid washes out after a few months of cold calling. At the end of all of that, if I can snap up a freshly trained youngster and put him or her in production, gee, I save a lot of bucks and time.
Like I said, conceptually, I get the rationale. On the other hand, as I said earlier, I hate and detest the practice of enforcing trainee fees. I mean, where does this nonsense stop? If you take a minimum wage job at McDonald’s and they train you in how to flip burgers and toast buns, should that employer be able to ding you for all that training if you quit and go to Burger King or Wendy’s? Yeah, I know, stocks ain’t burgers. It’s different. Sure, it’s always different — except, when you think about it, it’s really not.
For one thing, I’ve rarely, if ever, seen any trainee get the value of what their former firm now claims was the fair price-tag for the training. Sure, a Wall Street employer can put in an agreement that a trainee who leaves early has to repay $25,000 or $75,000 or whatever. On the other hand, once you start drilling down into the actual costs of providing stockbroker training and you start to examine what’s actually taught, it’s hard to reconcile the demanded dollar amount of the sought repayment with the value of the training.
Last I heard, annual tuition for Harvard was about $50,000, which is not to say that a year at Harvard is worth $50,000, but it is a reference point for the absurd demands that are involved with these Wall Street training fee arbitrations. Ultimately, much of what passes for securities-industry training could be found in a Securities for Idiots book, which doesn’t cost anywhere near five-figures.
The cost of training your salesforce as a risk that an employer should shoulder; and not one that should be pushed off on some kid who thinks that she might want to become a stockbroker, only to learn that it’s not the right career. Moreover, training folks to learn how to make dozens of daily cold calls, how to overcome customers’ objections, and how to push house product too often finds its way into the curriculum.
Wall Street as an industry should underwrite the cost of educating its registered persons. Forcing a broker to stay on with an employer for another year or so in order to avoid having to repay training costs is not best for the industry or the investing public. I sure as hell don’t want a disgruntled, unhappy stockbroker servicing my needs — and the ramifications to the employing brokerage firm for forcing such a person to remain employed may be quite negative in the event of a customer lawsuit.
Similarly, if the ultimate concern here is to not bestow a benefit upon a competitor, then why not create something akin to the present Broker Protocol and require new employer firms to reimburse the former employer for the remaining pro rata training costs?
Then there’s that incredibly novel idea: how about treating your registered persons with respect and dignity, and providing a nurturing workplace? You know, instead of beating them over the head because they want to leave what they view as a sweatshop, how about you go out of your way to make the environment so professional that they’d want to stay?
The Wells Fargo Fight Cards
Wells Fargo seems to have a penchant for taking trainee fee cases to the mat – although some of these reported FINRA arbitrations may have been inherited through Wells Fargo’s 2008 acquisition of the old Wachovia brokerage business, which included A.G. Edwards. Of the seven contested FINRA trainee fee arbitrations that resulted in decisions that I’ve recently written about, all involved either Wells Fargo, Wachovia, or A.G. Edwards. The reported FINRA arbitration decision in those seven cases have not reflected an overwhelming record of victory for the former employer.
In only one FINRA arbitration that “Street Sweeper” reported did Wells Fargo get every penny it sought in its damages demand and that was against a former employee who represented himself. In one case and in another matter, the firm received less than half of the compensatory damages sought. In three cases, the former Wells Fargo employee walked away (also read this case) from the battle without having to pay a penny (as was also the case in an A.G. Edwards trainee fee case). In today’s case, the firm got the full $25,000 sought on the agreement but was denied other costs, fees, and relief except for reimbursement of the forum fees.
For more details, see these “Street Sweeper” columns: