Power of Attorney. Executor. Beneficiary. Those are all terms that should set off alarms for any registered representative asked to accept such a role for a customer. And even if the lights aren't flashing and the bells are ringing in your head, rest assured that something will light up and sound off in your firm's compliance department -- and ultimately at an industry regulator. Yes, you can, under certain circumstances, accept such roles; but you better make sure you're up to snuff with both your firm's compliance rule and industry regulators' regulations. Adding fuel to that compliance and regulatory fire, we have a recent case in which we add the volatile mix of a signatory role over bank accounts and service as an agent in a healthcare directive.
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Linda Averman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Linda Averman, Respondent (AWC #2012034847701, November 14, 2014).
Averman was first registered in 1983 and from August 26, 1997 until June 1,2012, she was associated with Capital Analysts, Inc. (''CAI") as both a general securities representative and as an investment advisory representative. As a result of the acquisition of CAI's assets by Lincoln Investment on June I, 2012, Respondent Averman's registrations were transferred pursuant to a bulk transfer. The AWC asserts that Respondent Averman had no prior FINRA disciplinary history.
2004: POA, Signatory, and Health Agent
From 1998 until 2012, Averman was allegedly the registered representative for a customer, who she had known since about 1985. In 2004, that customer:
- executed a Power Of Attorney ("POA") appointing Averman as her attorney-in-fact over her bank and securities accounts;
- added Averman as a signatory with authority to write checks on her bank accounts; and
- designated Averman as her health agent pursuant to an Advanced Healthcare Directive with a POA.
2009: Beneficiary and Executrix
In 2009, the customer:
- designated Averman as a beneficiary to her mutual fund account (Averman was the registered representative); and
- appointed Averman as an Executrix in her will.
2012: Service As Executrix
Following the customer's death in August 2012, Averman served as the Executrix for the estate.
The AWC asserts that at all relevant times, CAI's policies prohibited its registered representatives from:
- serving as a fiduciary (including acting with a POA) without the permission of the compliance department;
- having a personal financial interest in a customer account; and
- accepting an appointment in a personal fiduciary capacity, such as trustee, executor, or attorney-in-fact under a POA, unless the customer was an immediate family member.
The AWC asserts that Averman never informed CAI about the POA at issue or her designation as the customer's beneficiary. In addition, Averman failed to timely disclose to Lincoln the POA appointments, the appointment as the Executrix, and her subsequent service as the Executrix.
As part of her firm's compliance protocols, Averman completed a "Registered Representative Interview Form," dated April 7, 2009, June 8, 2010, and May 31, 201 1, wherein she answered "NO" to the following:
Does the Advisor have check writing authority for any client?
Does the Advisor act as a trustee, custodian, or power of attorney for a securities client?
The AWC asserts that on November 20,2012, Lincoln filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") terminating Averman.
For failing to disclose that she had been appointed and acted with a POA and as an Executrix, and that she had been designated a beneficiary of her customer's mutual fund account; and for making false representations on three compliance questionnaires, FINRA deemed Averman's conduct in violation of NASD Conduct Rule 2110 (for conduct prior to December 15, 2008) and FINRA Rule 2010 (for conduct on and after December 2008). In accordance , with the terms of the AWC, FINRA imposed upon Resondent Averman a $7,500 fine and a three-month suspension from association with any FINRA member firm in any capacity.
Bill Singer's Comment
You may have your thoughts on the above settlement. A $7,500 fine and three-month suspension may strike you as fair or excessive. The whole registered rep/customer relationship may seem a one-off scenario in which no good deed apparently goes unpunished. On the other hand, consider the disclosure in the online FINRA BrokerCheck records as of November 27, 2014, in which we are informed that Lincoln "Discharged" Averman on October 22, 2012, based upon allegations that:
WITH RR'S SUBMISSION OF INSTRUCTIONS FOR A DECEASED CLIENT, THE FIRM DISCOVERED THAT THE RR, IN CONTRAVENTION TO FIRM POLICY AND INDUSTRY STANDARD OF CONDUCT, HAD FOR AT LEAST ONE CLIENT ACCEPTED LEGAL POWER OF ATTORNEY, WAS APPOINTED AS EXECUTRIX ON THE CLIENT'S LAST WILL AND TESTAMENT, AND WAS PRIMARY BENEFICIARY OF CLIENT'S ASSETS IN WILL AND ON IRA. FURTHER REVIEW OF RR'S FILES REVEALED THAT RR HAD ACCEPTED CONTINGENT FIDUCIARY APPOINTMENTS FOR A LEAST 5 OTHER CLIENTS, AND MAINTAINED IN HER FILES CLIENT STOCK CERTIFICATES FOR ONE CLIENT AND CLIENT SIGNED BLANK FORMS FOR 27 CLIENTS