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The Elderly Edward Jones Client, His Account, His Will, His Stockbroker, and The Broker's Wife
May 15, 2017An elderly brokerage firm client designated his stockbroker as an account beneficiary; thereafter, the client substituted the broker's wife as the account beneficiary and named her as a beneficiary of his Will -- add into that mix of facts a further granting by the client of a medical POA to the stockbroker. At first blush, it's an unsettling fact pattern and concerns about elder fraud immediately pop into our heads.
BrokeAndBroker.com Blog publisher Bill Singer, Esq. underscores the valid regulatory/compliance issues raised in this case. Also, Bill wonder how much of what transpired may have been based on a healthy relationship among the customer, his stockbroker, and the broker's wife. As Bill admonishes, "may have been based" is not an acceptable level of detail in such an important regulatory/compliance case.
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, Steven Anthony Olejniczak submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Steven Anthony Olejniczak, Respondent (AWC 2016050107901, May 8, 2017).
The AWC asserts that Olejniczak entered the securities industry and was first registered in 2012 with FINRA member firm Edward D. Jones & Co., L.P. The AWC asserts that he had no prior relevant disciplinary history in the securities industry.
February 2016 Beneficiary Designation
The AWC alleges that during Olejniczak's tenure with Edward Jones, the firm's policies:
prohibited a registered representative from being named as a beneficiary by his or her own customer and continuing to service the customer's account. The Firm's policies and procedures required a registered representative to notify the Firm's Compliance Service Department upon learning that a customer had designated him or her as a beneficiary.
In February 2016, Olejniczak was allegedly designated by 76-year-old customer "RS" as the beneficiary of "90% of the assets in a Firm account held by RS."
SIDE BAR: The quote about the assets in "a" firm account held by RS is in contradistinction to other references in the AWC to "the customer's Firm account," which raises confusion as to whether RS had only one or multiple Edward Jones accounts. The AWC should have cited, for example, "RS's sole Edward Jones Account," or "one of three Edward Jones accounts maintained by RS."
The AWC asserts that no later than February 2016, Olejniczak was aware that he had been named as RS's beneficiary but that the Respondent failed to notify his firm of that status as required and continued servicing the account. FINRA deemed Olejniczak conduct to constitute a violation of FINRA Rule 2010.
Substitution of Wife
The AWC references another Edward Jones policy requiring its registered representatives to:
notify the Firm's Field Supervision Department upon learning that a customer named the registered representative's family member as a beneficiary.
The AWC asserts that in March 2016, RS:
- replaced Olejniczak with Olejniczak's wife as the beneficiary of 90% of the assets in his brokerage account; and
- named Olejniczak's wife as a beneficiary of his estate in his Last Will and Testament.
The AWC asserts that by March 2016, Olejniczak was aware of RS' above actions concerning his wife as an account and estate beneficiary but, notwithstanding, Respondent failed to notify his firm's Field Supervision Department. FINRA deemed Olejniczak's conduct to constitute a violation of FINRA Rule 2010.
Medical POA
Additionally, the AWC alleges the Edward Jones' policies prohibited its registered representatives from acting in a fiduciary capacity for a customer, subject to exceptions that required the approval of the firm's Field Supervision Department. Pursuant to the in-house policies, "fiduciary capacity" was defined so as to include serving as an "attorney-in-fact."
The AWC alleges that in March 2016, RS executed a document which gave Olejniczak medical power of attorney in the event that RS became incapacitated. The AWC asserts that by March 2016, Olejniczak of his appointment as RS' medical attorney-in-fact. FINRA deemed Olejniczak's failure to notify his firm or seek its approval concerning his appointment as constituting a violation of FINRA Rule 2010.
Discharge
Online FINRA BrokerCheck files as of May 15, 2017, disclose the Edward Jones "discharged" Olejniczak on May 12, 2016, pursuant to allegations that:
Mr. Olejniczak failed to report to the Firm that he was named as a beneficiary of a non-related client's Transfer on Death account.
Sanctions
In accordance with the terms of the AWC, FINRA imposed upon Olejniczak a $10,000 fine and a six-month suspension from association with any FINRA member in any capacity.
Bill Singer's Comment
These beneficiary and POA cases keep popping up on FINRA's regulatory docket. I fully and unequivocally understand the very legitimate regulatory and compliance concerns raised when a stockbroker is named as a beneficiary of assets of an elderly client's accounts or estate -- and similar concerns exist when a stockbroker is granted a POA by that client. In-house policies imposing conditions upon certain transactions between elderly clients and the firm's associated persons not only protect the firm against liability but also serve to protect the associated persons. A failure to follow such policies exposes the firm to litigation risk and undermines the credibility of the associated person should there be questions of arms-length conduct or undue influence. As such, I am in no way questioning the appropriateness of any compliance or regulatory policy addressing such issues. Have at it!
When disclosing a beneficiary status, a stockbroker does not necessarily facing termination of employment by his or her firm --or even a legal obligation to renounce the bequest. If you were employed at Edward Jones during the relevant times, your choice would have been to retain the beneficiary status but turn over the servicing of the account to another stockbroker; or, in the alternative, to resign and possibly join another firm that would permit the dual status.
Complying with an employer's policies pertaining to disclosing beneficiary status or POAs is not always a simple undertaking. Not every stockbroker designated as a estate beneficiary by a elderly client is contemporaneously aware of that fact. In many cases, the stockbroker only first learns about a bequest in a Will/Estate when notified by an executor/administrator following the client's death. In the scenario involving a beneficiary designation in a brokerage account, however, the servicing stockbroker files the paperwork on behalf of the customer and must be aware of the disclosable status.
Another issue to consider in cases involving gifts by elderly clients is whether the stockbroker was named as a beneficiary of the elderly customer's entire estate or of a more limited component, such as a brokerage account or specified assets. In the Olejniczak AWC, the February 2016 beneficiary designation by RS was apparently limited to a "Transfer on Death" ("TOD") account. Although not discussed in the AWC, it would seem that the designation of Olejniczak as RS' TOD account beneficiary was not "hidden" from Edward Jones as paperwork needed to be filed to enable the designation to take effect.
SIDE BAR: I would have preferred that the AWC offer us some indication as to the valuation of the TOD account versus RS's overall estate. As previously criticized, FINRA's presentation of the facts in the AWC does not clearly assert whether RS had multiple brokerage accounts and the issue under consideration involved only one, a TOD account.
The mere existence of an elderly client does not automatically render that individual as mentally incompetent and does not infuse any bequests by that client as brought about by fraud. We need to distinguish between circumstances indicative of elder fraud and those suggesting a desire by a senior citizen customer to reward a kindness or to bestow a gift. Accordingly, another unsatisfactory aspect of this AWC is FINRA's failure to present an explanation as to why RS substituted Olejniczak's wife as the TOD beneficiary, and, also, as to why RS named the wife a beneficiary in his Will.
If FINRA was provided with some explanation of those events, it should have offered them to better frame the conduct. There is no allegation in the AW that Olejniczak or his wife over-reached or pressured RS, and if there were such concerns, I expect that FINRA would have noted them. In that vein, it would have been appropriate for the AWC to offer some context about the relationships (if any) among RS, the stockbroker, and the stockbroker's wife -- did the three enjoy a personal relationship outside of the brokerage relationship, had the parties known each other for an extended number of years? Notably, there is no suggestion that any of RS' heirs or any third-party instituted any civil litigation or probate action challenging RS's testamentary capacity or the legitimacy of the actions noted in the AWC.
Why did RS grant a medical POA to Olejniczak? Did the customer have any living family? Did the customer and Olejniczak have a close relationship such that the stockbroker was viewed by the client as a trusted friend? There is no allegation whatsoever by FINRA that Olejniczak improperly influenced RS to grant the medical POA and, similarly, there is no suggestion of an impropriety in the stockbroker's handling of that power. I doubt that the AWC would have omitted such allegations if FINRA had found any basis to raise them.
Finally, there is no assertion in the AWC that RS is now mentally incompetent or deceased, or that he was mentally incompetent to undertake the designations at issues in the AWC. As to the issues of competency, I would certainly have expected them to be raised in the AWC if such existed and, accordingly, I infer that RS was aware of his actions. As to whether RS is alive or dead, I don't understand why FINRA would not have clarified that issue. In light of the disclosure of the facts in this AWC, RS may have removed Olejniczak's wife as a beneficiary and withdrawn to medical POA granted to the stockbroker -- and if the client persisted in maintaining such designations, that would be a fact favorable to the Respondent.
Absent from the allegations in the Olejniczak AWC is any assertion that he unduly profited from servicing RS. In other such cases, we have seen stockbrokers abusing their relationship with elderly clients in the form of writing out checks to themselves from the client's accounts, over-charging for various dubious services, and generally taking advantage of a frail and vulnerable individual. I am not defending or justifying Olejniczak's conduct. For all we know, Olejniczak is a very decent and caring individual who thought he was doing the right thing when it came to an elderly client -- and RS seemed genuinely moved by his relationship with his stockbroker given the trust inherent in any grant of a medical POA. I concede that such inferences are based upon nothing more than surmise and the reality may be far different. That being said, FINRA owes the investing public, the industry, and the Respondent farm more content and context.
Misunderstanding your firm's internal policies is not, in and of itself, an exculpatory fact, but confusion about regulatory/compliance practices should always be dispelled by an employer or regulator. For example, many associated person mistakenly believe that there is no need to disclose being named as a beneficiary in a Will until such time as the testator dies. The logic behind such misunderstanding is that a Will can be changed at any time until the testator's death and the bequest is revocable. Simply because someone says that they plan to designate you or have designated you as a beneficiary doesn't meant that it's true -- and it doesn't mean that such an individual has provided you with a copy of their Will. Those may be intriguing intellectual exercises but few compliance officers will appreciate your tap dancing around developments when you should have asked for guidance or clarification.
In the case of notice requirements generated upon the grant of a POA, many associated persons do not believe that they need to notify Compliance until they plan to or have exercised a power pursuant to the POA. That may strike you as an odd explanation or excuse but I have heard it asserted many times with sincerity. In fact, I have seen in-house policies addressing "acting" as an attorney, and I know of Annual Compliance Questionnaires asking whether someone has "exercised" a POA in the past year. So, which is it? Is the obligation to notify an employer triggered upon learning that you have been granted a POA or only when you exercise (or plan to) some power pursuant to the POA? All of which explains the need to regulatory review published compliance policies and ensure that they conform, and that they say what you mean and mean what you say.
Sometimes, the very best that the BrokeAndBroker.com Blog accomplishes is to prompt folks to think about things that never crossed their minds or to engender an in-house discussion, which may result in the issuance of a compliance notice. The beneficiary and POA issues raised in today's coverage of the Olejniczak AWC should accomplish those desired goals.
ALSO READ:
- FINRA Settles With Advisor Who Acted as POA and Health Surrogate (BrokeAndBroker.com Blog, April 18, 2017)
- FINRA Fines And Suspends Merrill Rep For Altering Client Documents
(BrokeAndBroker.com Blog, April 12, 2017) - The 100 Year Old Beneficiary, The Stockbroker Trustee, And The Current Former Customer (BrokeAndBroker.com Blog, April 1, 2015)
- Stockbroker Does Not Get Buy With A Little Help From His Friend
(BrokeAndBroker.com Blog, February 13, 2015) - Power of Attorney, Beneficiary, and Executrix Roles Slam Stockbroker
(BrokeAndBroker.com Blog, November 25, 2014) - Litigation After Death Haunts One Stockbroker (BrokeAndBroker.com Blog, December 26, 2013)
- Broker Rips Off Elderly Client and Church (BrokeAndBroker.com Blog, September 13, 2013)
- Broker Removed As Executor By Customer (BrokeAndBroker.com Blog, June 13, 2013)
- Husband's Unauthorized Withdrawals Land Stockbroker In Hot Water (BrokeAndBroker.com Blog, October 12, 2012)
- Stockbroker Victimized By Husband's Withdrawals From Wife's and Child's Accounts (BrokeAndBroker.com Blog, July 19, 2012)
- The Wife Dies of Cancer, The Husband Has Alzheimer's - And Their Stockbroker Is Barred (BrokeAndBroker.com Blog, November 2, 2011)