May 3, 2021
Imagine that you got a stockbroker. Imagine that you got an elderly customer. Imagine that the client drafts a Will. Now imagine how the intersection of the stockbroker and customer could raise all sorts of troubling issues and how difficult it becomes to police potential misconduct or prevent abuse. What's the best regulatory approach? What's the best compliance policy? What happens when a customer sincerely wants to bestow a benefit upon a stockbroker via a bequest? What if the stockbroker never had a clue? What if the stockbroker did?
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, Gary Len Wells submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Gary Len Wells, Respondent (FINRA AWC 019064851901)
The AWC asserts that Wells was first registered in 1983 and from January 2008 to February 2015, he was registered with Wells Fargo Advisors, LLC, and, from February 2015 to January 2020, with Wells Fargo Advisors Financial Network, LLC. The AWC asserts that Wells "does not have any relevant disciplinary history."
2008: Customer Opens Account with Wells at Wells Fargo
The AWC asserts that when Wells joined Wells Fargo in 2008, a "long-time customer" opened an account at the new firm. Sometime before 2012, that customer named Wells in her Will as both a beneficiary and a fiduciary.
2012: Customer's Brother Complains and Wells Fargo Tells Wells to Say "No Thanks"
As alleged in part in the AWC:
[I]n 2012, WFA compliance personnel contacted Wells regarding a complaint
received from the customer's brother indicating that Wells was named in a fiduciary
capacity and as a beneficiary in the customer's will. Thereafter, WFA instructed Wells to
have himself removed from the fiduciary and beneficiary designations and further
instructed Wells that if the client refused to remove him that he should decline the
2014: Wells Reverses Wells' Wire from Estate
At some point, the inevitable happened and the customer died, which set off a cascade of issues:
2014 - 2016: Checking It Out
On December 4, 2014, following the death of the customer at age 92, Wells received a
bequest in the form of a wire transfer from the customer's estate to his WFA brokerage
account. WFA reversed the transfer of funds and informed Wells in writing that he would
not be allowed to receive assets as a bequest from a non-family member.
You'd sorta think that once Wells Fargo reversed the transfer in December 2014, that Wells would both be out of luck and, you know, also get the message. As it was, the Estate certainly seemed to get the message and, go figure, the wires to Wells ceased, but, hmmm, now we got several checks being issued by the Estate to the stockbroker. Wells Fargo caught the first wire transfer from the Estate to Wells because it was likely flagged when it hit his Wells Fargo account. The checks? Gee, if they didn't get deposited into Wells' Wells Fargo account, how would the firm know:
After WFA informed him that he could not accept such funds, Wells then proceeded to
accept three separate bequests from the customer. On December 31, 2014, following the
reversal of the transfer, Wells received a check issued by the customer's estate for
$93,968.18. Contrary to the WFAFN WSPs, on September 8, 2015, Wells deposited the
check into a personal savings account at a bank not affiliated with WFAFN. Two other
checks were deposited into the same account. On January 12, 2016, Wells deposited a
second estate check, dated August 12, 2015, for $521,805.00. Wells deposited the third
estate check, dated January 22, 2016, for $5,864.40, on that date.
In February 2015, Wells became associated with WFAFN. Wells concealed the fact that
he was the beneficiary and had received bequests from the customer's estate by making
false statements on WFAFN's compliance questionnaire in 2016. Specifically, Wells falsely stated that he was not the beneficiary of the will of a customer and that he had not
received an inheritance from the will of a customer.
The AWC asserts that during the relevant period of December 2014 through January 2016, that Wells Fargo's written supervisory procedures prohibited the acceptance of a bequest or a fiduciary appointment from a non-family member. Online FINRA BrokerCheck records as of May 3, 2021, disclose that on December 16, 2019, Wells Fargo "discharged" Wells based upon allegations that:
Wells Fargo Advisors Financial Network, LLC ("FiNet") disaffiliated with Mr. Wells
after he acknowledged accessing a client's safe and taking custody of cash
contained therein before depositing the cash into the customer's account. Mr.
Wells also acknowledged accepting a bequest from the estate of a client serviced
at a prior firm. He received the bequest after the compliance department requested
that he confirm the client had removed him as a beneficiary from the client's will.
In accordance with the terms of the AWC, FINRA found that Wells violated FINRA Rule 2010 and the self-regulatory-organization imposed upon him a $20,000 fine and a 15-month suspension from associating with any FINRA member in all capacities.
Bill Singer's Comment:
Wells Fargo probably should not hire folks with the last name of "Wells" because it makes a mess of trying to distinguish between Wells-the-company and Wells-the-person, particularly when the writer prefers to use "Wells Fargo" or "Wells" rather than an acronym that obscures the firm's name.
A few interesting aspects of the above narrative. First, the AWC characterizes the customer's brother's communication as a "complaint," despite the fact that the brother was not the customer at issue. Notwithstanding that such a distinction is somewhat mechanical given the larger concerns raised in this AWC, it still bears noting. I'm not convinced that a complaint from a non-customer should be characterized as a "complaint" according to industry guidelines but, like I said, given the over-arching issues in this case, that's truly a quibble, at best.
Critically, the AWC asserts that Wells Fargo instructed Wells to either remove himself as a fiduciary/beneficiary, or, it the client refused to accede to the removal, he should decline the appointments. Frankly, that seems somewhat half-hearted (or even half-assed) compliance oversight. I would think that the preferred compliance protocol would have been for Wells Fargo's Legal or Compliance Department to send a written communication to the client indicating that it is against company policy to permit a registered person to accept a fiduciary and/or beneficiary designation -- and to then request that the client remove the cited designations. That communication might also invite the client to contact the firm to discuss the motivation behind the designations and any other concerns involving the rep, and, further, that communication might allow for the fact that if the client present compelling circumstances, the company might rescind the prohibition.
Of course even if Wells Fargo contacted the customer directly, that effort may also prove problematic. For example, what if (by the time Wells Fargo sends its communication) the client is incompetent to undertake the removal of designations? Similarly, what happens if the Testator chose to keep someone's appointment as a beneficiary/fiduciary confidential until her death -- or if a stockbroker (is aware of the designation in a Will and also aware of the Testator's desire to keep that designation confidential) and the stockbroker honors the customer's preference and refuses to disclose that confidential designation to an employer firm? Finally, what if the Testator insists that someone serve as a fiduciary or benefit as a beneficiary despite that person's request to be relieved of those roles?
To be clear, I disapprove of any financial professional serving as a trustee or fiduciary for a client, and certainly do not approve of that professional's designation as a beneficiary. That being said, there are circumstances where there is a pre-existing relationship between a client and an adviser/broker that may well justify an exception -- rare as that circumstance may(or should) be. Similarly, a disabled or elderly individual may have been abandoned by friends and family, and developed a close, sincere relationship with a financial professional. Whatever the circumstances and compelling exceptions, acting in the best interests of the public would normally proscribe the roles of fiduciary and beneficiary offered to any adviser.
Finally, maybe it's just me (and it often is) but I'm having a hard time swallowing FINRA's imposition of only a 15-month suspension rather than a Bar -- and I say that solely based upon the strength of the regulator's case as set forth in the AWC. Either FINRA waaay, waaaay, waaaaay overstated its case and juiced up the fact pattern; or, in the alternative, if things are as alleged, I'm not quite comprehending the disconnect between the seriousness of the alleged misconduct and the failure by FINRA to impose a Bar.