Broker dealers response to Finra’s priority letter leaving quality advisors under the bus
Back in January, Finra released their exam priority letter to broker dealers. The letter made it very clear their focus this year would be on identifying recidivist brokers or “rogue brokers”. The letter also emphasized that they would be looking more closely at the broker dealers that housed these “rogue brokers”. I italicize rogue because definition of this term is undetermined. On the surface, this effort seems like an excellence priority, but the way it’s playing out isn’t always fair for the advisors being affected.
In a recent InvestmentNews article Jodie Papike writes about specific examples of how applying statistics to an advisors record doesn’t always make sense.
“By many accounts, this is a positive move that will hopefully weed out the registered reps in the business that have no place giving clients advice, but what about the quality advisors that are being terminated for misunderstandings or things beyond their control? Is the industry in such a rush to pacify the regulators that they are throwing undeserving advisors under the bus?”
In order to put this in perspective, I think it’s important to lay out real life examples of how negative marks on a record are not always representative of the entire picture.
Customer complaints are a good example of this. Frequently, I see situations where advisors have no control over whether a complaint is settled or fought. Often, broker dealers settle complaints when they determine it will be less costly vs. going to arbitration. Does that settled complaint necessarily reflect wrongdoing by that advisor or was it purely a business decision?
Another example is with terminations. You know the old saying “there are two sides to every story”? From my experience, this couldn’t be more accurate than it is with terminations. I often hear stories from advisors where the only reason why certain language was being applied to their record was because their broker dealer found out they were leaving or they were trying to find ways to hold on to their book of business. Does it make sense that we judge an advisor solely based on what a firm, that has a vested interest, reports about them?
This brings me to my concern. If a broker dealer is more focused on how their stats of registered reps with marks on their CRD’s looks to Finra over understanding the details behind a mark, undeserving/quality advisors will pay the price.
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