In a Financial Industry Regulatory Authority ("FINRA") arbitration Statement of Claim filed in April 2012, Claimant Wells Fargo Advisors sought to recover $25,000 in compensatory damages attendant to the alleged breach of a Supplementary Training Agreement to which Respondent Graham, appearing pro se, was a party. In The Matter of the FINRA Arbitration Between Wells Fargo Advisors, LLC, Claimant, vs. Benjamin Graham, Respondent (FINRA Arbitration 12-01438, November 9, 2012).
The sole FINRA arbitrator found Respondent liable and ordered him to pay to Claimant:
Once upon a time, when Wall Street was rolling out the hiring carpet, major brokerage firms offered Employee Forgivable Loans to top producers and had trainee programs for wannabes.
In more recent years, as Merrill Lynch, Bear Stearns, Lehman Brothers, Smith Barney, JP Morgan, and UBS fell upon hard times, those enticements faded. Moreover, those who walked upon Wall Street's cushy welcome mat and into an entry-level job or highly compensated stockbroker position, often found themselves in a hostile work environment and, if they found themselves forced out or decided to quit, often on the receiving end of hardball collection efforts for the balances of EFLs or trainee fees. In many of these collection efforts, the former employers acted responsibly and were entitled to recoup their outlays or costs; other times, however, the whole collection effort took on unsavory overtones of victimizing folks who were laid off or forced out through no fault of their own.
By and large, I hate - perhaps I should say "detest" - these Wall Street Training Fee cases. The theory behind this practice is that a brokerage firm invests its time and money training raw globs of clay into becoming high-powered, professional stockbrokers. Depending upon the training agreement, the bargain is that the firm bestows the benefits of all that fine training upon you with the understanding that you will remain employed for at least a certain period of time (as set forth in your Training Agreement).
The inherent threat in the training arrangement is that if you leave before the expiration of the term, you must repay the training costs. How much do you have to repay? To supposedly make matters simple in the event of litigation, your employer graciously sets a valuation for the repayment of the training in the Training Agreement - and it's often some whopping figure like $75,000.
Now, don't get me wrong, I sort of understand why this punitive practice exists. Brokerage firms figure that any number of their competitors would just love it if someone else would pick up the training costs for all the newbies. Sure - let someone else triage through the numbskulls and weed them out, let someone else teach the basics of what's a stock and what's a bond, and let someone else incur the risk if the kid washes out after a few months of cold calling. At the end of all of that, if I can snap up a freshly trained youngster and put him or her in production, gee, I save a lot of bucks and time.
Like I said, conceptually, I get the rationale. On the other hand, as I said earlier, I hate and detest the practice of enforcing trainee fees. I mean, where does this nonsense stop? If you take a minimum wage job at McDonald's and they train you in how to flip burgers and toast buns, should that employer be able to ding you for all that training if you quit and go to Burger King or Wendy's? Yeah, I know, stocks ain't burgers. It's different. Sure, it's always different - except, when you think about it, it's really not.
For one thing, I've rarely, if ever, seen any trainee get the value of what their former firm now claims was the fair price-tag for the training. Sure, a Wall Street employer can put in an agreement that a trainee who leaves early has to repay $25,000 or $75,000 or whatever. On the other hand, once you start drilling down into the actual costs of providing stockbroker training and you start to examine what's actually taught, it's hard to reconcile the demanded dollar amount of the sought repayment with the value of the training.
Last I heard, annual tuition for Harvard was about $50,000, which is not to say that a year at Harvard is worth $50,000, but it is a reference point for the absurd demands that are involved with these Wall Street training fee arbitrations. Ultimately, much of what passes for securities-industry training could be found in a Securities for Idiots book, which doesn't cost anywhere near five-figures.
The cost of training your salesforce as a risk that an employer should shoulder; and not one that should be pushed off on some kid who thinks that she might want to become a stockbroker, only to learn that it's not the right career. Moreover, training folks to learn how to make dozens of daily cold calls, how to overcome customers' objections, and how to push house product too often finds its way into the curriculum.
Wall Street as an industry should underwrite the cost of educating its registered persons. Forcing a broker to stay on with an employer for another year or so in order to avoid having to repay training costs is not best for the industry or the investing public. I sure as hell don't want a disgruntled, unhappy stockbroker servicing my needs - and the ramifications to the employing brokerage firm for forcing such a person to remain employed may be quite negative in the event of a customer lawsuit.
Similarly, if the ultimate concern here is to not bestow a benefit upon a competitor, then why not create something akin to the present Broker Protocol and require new employer firms to reimburse the former employer for the remaining pro rata training costs?
Then there's that incredibly novel idea: how about treating your registered persons with respect and dignity, and providing a nurturing workplace? You know, instead of beating them over the head because they want to leave what they view as a sweatshop, how about you go out of your way to make the environment so professional that they'd want to stay?
The Wells Fargo Fight Cards
Wells Fargo seems to have a penchant for taking trainee fee cases to the mat - although some of these reported FINRA arbitrations may have been inherited through Wells Fargo's 2008 acquisition of the old Wachovia brokerage business, which included A.G. Edwards. Of the eight contested FINRA trainee fee arbitrations that resulted in decisions that I've recently written about, all involved either Wells Fargo, Wachovia, or A.G. Edwards. The reported FINRA arbitration decision in those eight cases have not reflected an overwhelming record of victory for the former employer.
In two FINRA arbitrations that "Street Sweeper" reported about, Wells Fargo got every penny it sought in its damages demand and that was against a former employee who represented himself and a second similar pro se case as reported in this column. In one case and in another matter, the firm received less than half of the compensatory damages sought. In three cases, the former Wells Fargo employee walked away (also read this case) from the battle without having to pay a penny (as was also the case in an A.G. Edwards trainee fee case). In today's case, the firm got the full $25,000 sought on the agreement plus attorneys' fees.
For more details, see these "Street Sweeper" columns: