Where There's A Will, FINRA Says No Way!

August 9, 2018

Where there's a will, there's a way. That's a nice saying. On the other hand, where there's a Will, you will likely have some folks saying "no way" when they learn that they've been cut out as a beneficiary or some questionable character has been cut in. Nothing like death, families, and cash to make a lot of work for lawyers. In today's featured FINRA regulatory settlement, we got an elderly client and a stockbroker who became a beneficiary of the client's estate. Wall Street's got rules and regulations about that type of a relationship. Wall Street's got in-house policies about that stuff too. The question is whether Wall Street has the "will" to do anything effective when it comes to dealing with circumstances where elderly clients designate their stockbroker as a beneficiary.

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,  Robert Rushby Humberston submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of  Robert Rushby Humberston, Respondent (AWC 2018057966901, July 27, 2018).

The AWC asserts that Humberston entered the securities industry in 2003 and in 2012 obtained a Series 7 General Securities Representative license. By 2014, Humberston was associated with FINRA member firm Ameriprise Financial Services, Inc. The AWC asserts that "Humberston has no relevant disciplinary history in the securities industry."

The Elderly Customer

The AWC alleges that during the relevant period from September 2016 through January 2018, Humberston was assigned to service the Ameriprise account of an individual who the AWC characterizes as "DS, an elderly customer." Further, the AWC asserts in part that: 

In or around September 2016, Humberston learned that DS had died and designated him as the beneficiary of approximately 10% of her estate. However, Humberston failed to notify the Firm or seek revocation of the bequest at any time during the Relevant Period. This deprived the Firm of the opportunity to adequately supervise the relationship. 

Ameriprise Inheritance Policies

The AWC alleges that during Humberston's association with Ameriprise, the firm's written policies prohibited employees from receiving or inheriting money from any customer. In the event that a customer named an employee as a beneficiary, the firm's policies purportedly required that upon learning of the customer's act, the employee was required to notify the firm and to request at the earliest reasonable opportunity that the customer remove the employee from the bequest. 

Notwithstanding Ameriprise's purported customer/beneficiary policy, sometime around February 2018, Humberston received about a $96,662 distribution from DS's estate, which he deposited into his personal bank account. At some point still within February 2018 but after the deposit into his account, Humberston notified Ameriprise of his receipt of the distribution; however, he declined to return the distribution and resigned from the firm. 

FINRA online BrokerCheck records as of August 9, 2018, disclose under the heading "Employment Separation After Allegations" that Ameriprise permitted Humberston to resign on On March 5, 2018, based upon allegations that:

Advisor was permitted to resign while under review for a company policy violation related to a beneficiary relationship.

In accordance with the terms of the AWC, FINRA imposed upon Humberston a $5,000 fine and a three-month suspension from association with any FINRA member in any capacity.

Bill Singer's Comment

I've been contacted as a lawyer on far too many of these stockbroker-named-as-beneficiary matters by both the stockbroker and by the estate of a deceased customer. Clearly, this is not an isolated or rare event. Moreover, there are many opportunities for stockbrokers to exercise inappropriate control over their elderly or vulnerable clients, and such misconduct can easily manifest itself in the form of a dubious beneficiary. On the other hand, I am also aware of a number of circumstances where a stockbroker or sales associate developed a sincere bond with an aged or ill customer, and the designation as a beneficiary was totally appropriate, and, in some cases, came as a surprise to the industry employees. 

It is a bit of a discomforting surprise to learn that Wall Street's approach to stockbroker-beneficiary events is to frequently offer a choice between disclaiming the beneficiary designation or resigning. I mean, for godsakes, who in their right mind would remotely think that's effective? Let's see -- if, on the one hand, I'm looking at a suspension and a fine versus a few million in a bequest, hmmmm, oh well, I'll keep my mouth shut, keep the bequest, quit my job, tell FINRA to drop dead, and, yeah, good luck collecting any of the fine once I leave the biz and shove the suspension where the sun don't shine. Apparently, where there's a will, there seems to be a way to get around effective Wall Street oversight.

For those of you who think this issue is very rare and unusual, consider some of these cases as covered previously in the BrokeAndBroker.com Blog: