Blog by Bill Singer WEEK IN REVIEW

September 16, 2017

RIA Cherry Picking Case Rings Alarm (Anyone Listening?)

You live in an expensive condo apartment building. They put in smoke alarms. They put in fire alarms. They got a full-time guy on duty 24/7 just to watch over everything. One night, all the alarms go off. A fire has started and is beginning to spread. You don't do anything because, well, because it's just an alarm. They go off when someone cooks a steak next door. The guy on duty re-sets the alarms because he doesn't actually smell any smoke or see any fire and there's a big game on and he's watching it on his iPad, which he's not supposed to be doing, but the job doesn't pay all that much and like who the hell's gonna know? 

All of which leads us to a recent SEC settlement involving an investment adviser who kept a lot of good trades for himself and dumped a lot of his goofs into the unknowing accounts of his customers. Which bothered his custodian enough to send him packing. But it didn't bother another custodian enough to offer him refuge. And it didn't seem to bother the industry's regulators for about five years. READ

It's always a volatile mix. An elderly client. A client with a disability. A stockbroker. Assets. Cash. Sometimes, human beings try to do the right thing but it comes out all wrong. Other times, the explanation for doing the wrong thing is nothing more complicated than the natural instincts of a bad person. If you live long enough, you find that what folks do in life is often a jumble of good and bad intentions. In a recent FINRA regulatory settlement, we are asked to weigh in on the motivation and consequences of a respondent's actions involving an elderly, blind client. It doesn't look good for the stockbroker. It doesn't end well for the stockbroker. Frankly, I come away from this settlement with no sympathy for him. Looks like he got what he deserved and perhaps far less than he has coming to him. On the other hand, as much as this case is now settled and done with from FINRA's perspective, we are left with many questions and far too few answers. READ

FINRA Arbitrator Unimpeded By Defaulting Brokerage Firm

If you work on Wall Street, chances are that you're forced to arbitrate most disputes before the Financial Industry Regulatory Authority ("FINRA"). Given the nature of arbitration as frequently affirmed by the courts, it's viewed as a so-called alternative dispute resolution ("ADR") process unencumbered by all of the due process rights that are inherent in our court system. For staunch advocates of free enterprise, arbitration exalts the rights of individuals to pursue their grievances via a contractually negotiated process that promises to be quicker, cheaper, and more confidential that civil litigation in the courts. As with many things in life, promises are not always realized.

My personal view of arbitration has been expressed many times on the Blog. Simply stated, I am a libertarian with a small "l" and take no issue with the ability of parties to freely negotiate any agreement that provides for the fair resolution of disputes via ADR. What I detest is any mandatory system of arbitration that is the byproduct of non-negotiable contracts and tainted by the appearance of undue influence exercised in the rulemaking process and funding of the arbitration forum. By way of making my point, see if you can get a job on Wall Street without being subjected to the industry's system of mandatory arbitration; and, similarly, try to open a brokerage account without agreeing to the mandatory customer arbitration clause. Where in any of that take-it-or-leave-it is there a freely negotiated contract to arbitrate? Setting that rant aside for the moment, let's consider a recent intra-industry FINRA arbitration and the extent to which the rendered decision satisfies our concerns for fairness. READ

What happens when a stockbroker services the account of a customer whose behavior seems alarming? It's an interesting question. Sometimes what "alarms" a stockbroker is a customer's independence, which may be prompted by an understandable desire to avoid buying in-house products with front-end fees or hefty management charges. On the other hand, sometimes a stockbroker sees a client out of control and engaging in unsound financial decisions. It is a ticklish problem as to when and where to draw the line between respecting a customer's refusal to follow a stockbroker's advice and insisting that the advice be followed or the customer take her business elsewhere. When that line drawing isn't done on a timely basis or at all, the result may often be a lawsuit. Consider today's Blog analysis of a recent FINRA arbitration. READ

Stockbroker Refunds Commissions To Unhappy Morgan Stanley Customer

Your customer tells you that he is unhappy with your commissions. Okay, that sort of comes with the territory. After all, you're not all that happy with what the cable company is charging you for lousy Internet and TV services and you're also angered by those taxes and fees on your cellphone usage.

In today's Blog, we examine a case of a stockbroker who seems to have cut a check to reimburse an unhappy customer who's rankled by Morgan Stanley's commissions. In taking care of this customer, however, the stockbroker didn't disclose the payment to his employer. All of which raises a whole host of fascinating regulatory and compliance questions. See if you can follow our publisher Bill Singer Esq.'s analysis, which wonders whether every customer complaint is actually a complaint and whether every payment to calm an unhappy customer is a settlement. READ