October 12, 2019
Captain's log Star Date 20191011. We are circling planet FINRA, which is a dangerous place inhabited by a race of treacherous salespersons and their aggressive regulators. They live in an uneasy symbiosis. Before the landing party embarks for that hostile clime, we need to better understand the consequences of our actions when we interact with the denizens of the place. They do not always seem to act logically. What sometimes results in the extreme civil penalty of disqualification from their society, may also result in little more than an obligation to pay a fine in their local currency and sit on a rock for several months and get your mind right -- or so that's how it seems to us as we circle above. Mr. Spock will lead the party down to the surface but he is grousing about how the race of inhabitants are illogical. And he doesn't like illogical. Spock is a very logical fellow. Painfully logical. Frankly, I'm glad to be rid of him for a few days. He's not a party dude if you get my drift; however, I've asked him to look into that binary options deal that was transmitted to us by one of the planet's salespersons. Frankly, it's supposedly guaranteed and I can double my money in one star-date.
Some have speculated that the elimination of trading commissions -- and with them the old-style broker -- is another step towards the institutionalization of the investment advisor. Maybe. But certainly the trend has been in the other direction, with the most successful broker groups leaving large firms and setting up independent shops. The thought that large firms will be able to leverage technology in ways that smaller practitioners can't seems more of a wish than a plan. The nature of technology is such that, except for processing machines that depend on volume (like order processing), it becomes more widely distributed, not less so, as it matures.
In a recent federal lawsuit, the plaintiff public customer sues a brokerage firm for breach of contract. The thing is, the customer alleges that his signature on the contract was forged. The contract contains an arbitration clause. Moving along, the customer wants damages on his breach claims but also argues against being forced into arbitration. All of which reminds our publisher Bill Singer of the classic comedy scene in the movie Pink Panther, when Inspector Clouseau looks down at a dog and asks an innkeeper: "Does your dog bite?" After being assured by the innkeeper that his pet doesn't bite, Clouseau bends down to pet it -- only to be bitten. Shocked, Clouseau complains that he was bitten by the man's pet after being told that the animal did not bite. To which the innkeeper protests, "That's not my dog." Does your brokerage contract bite?
FINRA has a mandatory system of customer arbitration. Many dispute my contention. They say that it's not mandatory because public customers are not forced to arbitrate their disputes against stockbrokers and brokerage firms. Absolutely not the case, some argue. Arbitration is not mandatory, they insist. Arbitration is a private contract, they proclaim. It's freely bargained for, they assert. Really? You go try and open a brokerage account with any FINRA member firm and tell me what happens when you cross out the so-called "voluntary" arbitration clause. In today's featured FINRA customer arbitration case, we consider some of the troubling rules by which this forum operates.
Demographic studies conducted by Ernst & Young have concluded that the average financial advisor is 51, an age that has risen steadily each year and makes the average advisor a member of a protected class. The revised production requirements that former wirehouses now forcefully seek to enact will have the net effect of phasing out a significant number of age 50-plus advisors who cannot reasonably be expected to compete with the practice-growth requirements of their younger colleagues. Firms like Merrill Lynch focus on the perceived beneficial impact that their so-called motivational policies have on their firms' "bottom line;" however, not of concern to such employers is that those same policies may unintentionally have a discriminatory impact and violate both federal law and numerous state anti-discrimination statutes.