DEFENDING YOUR PROFESSIONAL INTEGRITY
Stay current on recent changes in the regulatory environment
Many financial professionals have pre-tax dollars provided by their firm to help them market and advertise their business. Unfortunately, with the ubiquity of BrokerCheck and Google, any monies spent on advertising or building referrals can work against an advisor that has negative disclosures on their record.
This year, resolve to use those pre-tax dollars on building your brand through the expungement of any negative disclosures. Whether it be meritless customer disputes, frivolous college pranks that resulted in criminal charges, or messy U5 terminations from previous employers, FINRA currently affords you the right to prove that these disclosures offer no investor protection.
You not only get the benefit of having a clean record but then all of those additional marketing dollars are spent shining the light on an unblemished BrokerCheck profile. One that you can be proud of, one that distinguishes you as an advisor who can be trusted to manage your clients' most important assets.
So let your compliance department know that you would like to spend that business development allotment on your professional reputation this year. It not only helps your business and it helps your firm in having one more advisor with spotless record.
As we barrel into 2018, many financial advisors are fielding calls about year-end tax implications for their clients. Not only on what deductions to squeeze into 2017 but on how the recently-passed Republican tax plan (calculator here) may affect their taxes for next year versus this year.
Prudent financial advisors considering expungement or other legal/arbitration services may want to take a moment to review their own tax implications as well in the coming days.
If you received income via 1099 as a sub-contractor (Schedule C), you may likely have the ability to deduct expenses for expungement cases directly as a legal expense.
Alternatively, if you are an employee paid wages via W-2, then you may be able to itemize your legal expenses (Schedule A) if it's for matters that help you produce income. You can learn more from IRS Publication 529 on the tax limits involved (2% of AGI). Obviously, you should always consult your tax accountant for a final say.
With the recent proposed rule changes from FINRA looking to shut the door on expungement, as well as the possible tax advantages given the new plan, it's imperative for advisors to take a little time this week to ensure they are spending their own money wisely.
As 2017 draws to an end, we just reached our internal goal and a huge milestone in the industry of obtaining our 100th FINRA expungement award this year for our financial advisor clients.
We thank all of the advisors, brokers, and wealth managers that took a chance on us in our early days and helped us achieve the only equitable resolution to the many meritless allegations that FA's receive.
There is no other firm advocating only for advisors in this industry.
50% of the attorneys represent customers in bringing these bogus claims, the other 50% of attorneys give half-hearted defenses that end up in settlement checks for the customer and a new disclosure on the FA's BrokerCheck profile. In FINRA's zeal to protect the investor, even at the cost of their own constituents, absolutely no one but AdvisorLaw is actually advocating on behalf of the financial advisor.
You know we've been doing good work when FINRA is now proposing to take away the expungement option for advisors due to us. We will continue to fight for advisors to have the option to prove their innocence in meritless customer disputes, frivolous criminal disclosures, and defamatory U5's as we move into 2018.
If you haven't already done so, please make your voice heard with FINRA by emailing your comments on the proposal to email@example.com (reference Notice 17-42). Having a transparent record of disputes is a great concept but it has to be fair.
We at AdvisorLaw look forward to helping you continue to clean up these nuisance claims in 2018 and preserve your rights to the minimal due process you're afforded by your own industry regulators.
On December 6, 2017, FINRA officially announced what may prove to be one of the most important Rule changes to brokers with one or more customer disputes.
What Has Been
2000 thru 2010 - FINRA removes certain meritless disclosures automatically after 24 months (no charge, no hoops to jump through)
2010 thru 2017 - FINRA puts back up those disclosures that were removed over the previous 10 years and now requires that you go through a lengthy and expensive arbitration to have them removed under Rule 2080.
2018 forward - FINRA proposes to eliminate the option for advisors to expunge customer disputes that were posted more than 12 months ago.
The newly released Reg. Notice 17-42 introduces a slew of proposed modifications aimed directly at frustrating the process for brokers to have false, misleading, or irrelevant information expunged from their records AND proposes that it goes away completely!
What Is Proposed
The biggest changes that will affect an advisor with disclosures are:
Who This Affects
A quick review of the winners and losers here reads like most every change FINRA enacts as a "self-regulatory organization":
What Financial Advisors Should Do
FINRA is currently accepting comments on the proposed changes to the Code of Arbitration Procedure Relating to Request to Expunge Customer Dispute Information (Reg. Notice 17-42). They are closing the comment period on February 5, 2017; there is not much time to act.
You must contact them in order to have your voice heard.
- You can email them at: firstname.lastname@example.org - just note that this is in response to Reg. Notice 17-42.
- You can mail them a letter at:
Office of the Corporate Secretary
1735 K Street NW
Washington, DC 20006-1506
We've known for some time that FINRA ranks their brokers based upon negative disclosures. However, that information has never been released to the public en masse due to instances where many non-adjudicated claims have never actually proven a sales-practice violation by the advisor.
A firm that represents customers in drumming up these complaints, The Securities Litigation & Consulting Group, has recently done their own review of all member firms as it relates to those employing the highest percentage of advisors with customer dispute claims. The result is their, "30 Worst Brokerage Firms". This is an interesting step on the behalf of the attorneys representing clients.
Firstly, it adds more pressure on FINRA to give out bulk data to firms like this or to give a good reason as to why not being that it all is available on BrokerCheck. Given the march towards more transparency we assume that FINRA will at some point be providing lists or subsets of these advisors to the general public. Attorneys representing clients will be drooling over that level of detail which will allow them to target clients of those with a previous dispute track record. Generating new allegations against advisors with previous claims makes turning "nuisance settlements" easy money.
Secondly, FINRA's confirmation of the broker ranking as well as their focus on investigations of these "high-risk" brokers, means that advisors who plan on staying in the industry for the long-term need to be proactive about removing themselves from this list immediately. Whether the heat comes from FINRA, the SEC, securities litigators, or simply from a single lost potential client, there is no upside to ignoring meritless customer complaints on your record.
Executive Vice President
3400 Industrial Lane,10A
Broomfield, CO 80020
This blog is my ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.