August 4, 2018
Wall Street's old commission system ain't what it used to be. We got fewer big broker-dealers and they arbitrarily adjust the compensation grid in ways that inexorably lower the percentages earned on increasingly higher production levels coupled with so-called "incentives" to push dubious house-product and to cross-sell and up-sell. As the trend seems to be in the direction of jettisoning commissions for salaries, many who once walked the broker-dealer registered representative path are now headed for the registered investment advisor byway. Unfortunately, with the growth of robo-advisors and a sense that we may be nearing an RIA saturation point, a lot of folks are caught between staying and going, or simply throwing in the towel and finding another career. Bitcoin anyone? Cannabis sales anyone? For the intrepid who are still hanging in with the FINRA member firm model, they are increasingly apt to explore outside business activities, private securities transactions, and ways to generate referral fees. In a recent FINRA arbitration, we have a registered person who believes he was screwed out of a fee for referring VA/Medicaid planning clients. It would seem that the contra-parties to his referral fee agreement have a different view. Hence, the genesis of a lawsuit.
Most lawyers brag about the cases they won and hope no one notices the others. But the life of a law practice takes many odd turns. I had just started packing up the files of one case that got away when I heard that Wells Fargo had agreed to pay over $2 billion to settle a mortgage fraud case dating back to 2007. "Wells Fargo Agrees to Pay $2.09 Billion Penalty for Allegedly Misrepresenting Quality of Loans Used in Residential Mortgage-Backed Securities" (DOJ Press Release) My case heading to the warehouse involved the same thing by SunTrust Bank, and I could not help thinking, as I read about Wells Fargo and thought about other cases that came before it, that our work on SunTrust had not entirely gone to waste. Sure, I'd rather have had a piece of a billion-dollar settlement. But this is still a tale worth the telling.
Memories. They are the stuff of popular songs. They are the bases for many lawsuits. Good, decent folks have a tendency to misremember stuff -- and some will swear to their dying day, even in the face of proof to the contrary, that their memory of events is accurate. In some cases, you put a document in front of a witness or you show them a video and, Eureka!, it jogs their memory and an epiphany comes upon them. They unmisremember and reremember and truth triumphs. On the other hand, how often has Nietzsche's observation been proven correct? "Memory says, 'I did that.' Pride replies, 'I could not have done that.' Eventually, memory yields."
The Financial Industry Regulatory Authority has issued yet another "Notice" -- this time not merely a regular, normal, run-of-the-mill notice but, OMG!!!, a "Special Notice." Lemme stop here so that I can catch my breath because I am breathless, breathless with anticipation, I say. Just off the press, we have: FINRA Requests Comment on Financial Technology Innovation in the Broker-Dealer Industry
(FINRA Special Notice July 30, 2018 / Comment Period Expires: October 12, 2018)
Today's BrokeAndBroker.com Blog offers a chilling a tale about misconduct on Wall Street. We got a 93-year-old retiree with dementia and a court-appointed guardian. During a four-year period, we got a stockbroker who racks up 3,500 transactions, $723,000 in trading losses, and $735,000 in commissions and markups. We got a $470,000 settlement and the stockbroker gets barred from the industry. Did anyone at the broker-dealer notice the activity in the elderly client's accounts? Did anyone at the broker-dealer do anything about it?