DEFENDING YOUR PROFESSIONAL INTEGRITY
Stay current on recent changes in the regulatory environment
A large percentage of advisors whole-heartedly believe that the disclosure on their BrokerCheck has not affected their business. Typically, that belief is based upon the fact that nobody has told them that they went elsewhere because the account-winning rep had no disclosures.
Consider the common scenario:
A friend of mine told me about a local restaurant that he insisted was a perfect date spot for my wife and I. In an attempt to make up for the long hours I work, I booked reservations for two, a couple of weeks out. It was my intention that the date be a surprise. As usual, I tipped my hand and gave up the name of the restaurant to my wife a few days later.
Within a matter of two days, my wife had done some due diligence about the restaurant online (only because she was excited for the upcoming date). Although most of the things she found online were favorable, she came across a few negative reviews that she felt were legitimate. That is all it took to persuade me to cancel the reservation and find a different venue.
The reason I am sharing this story is to highlight the reality that people make decisions which are triggered by what they find online.
Currently, about 85% of FINRA licensed professionals have no disclosures on their BrokerCheck profile. Of the remaining 15%, roughly half (7%) only have a single disclosure. Below is a side-by-side of the top left of a BrokerCheck profile for an rep with one or more disclosures (left), and the same for a rep with zero disclosures.
The high-contrast orange box (instead of the docile light blue box) contains an icon with an exclamation point. Clearly “orange” is associated with the use of caution or encourages one to slow down (e.g., traffic lights). In combination with the exclamation point, it is clear that FINRA is attempting to caution investors whom are researching potential FA’s with whom to invest.
For those who have one or more disclosures on your BrokerCheck profile, you have a pretty simple decision to make. Your first option is to continue ignoring the impact it has had, and will likely continue to have on your business. Thankfully, you will be able to ignore it until a potential client lost is kind enough to tell you that they went elsewhere because the other advisor did not have a disclosure. Your second option is to speak with someone that has experience obtaining expungement awards which facilitate the removal of disclosures. If that person can show you examples of expungement awards he or she has won recently that are similar to your situation, you will have found an avenue to eliminate any additional harm to yourself or your career.
FINRA’s Rule 2080 is the pathway for many financial advisors to seek expungement of customer complaints that were filed without merit. The process will never be as fast as many brokers would like, being that it takes 10 months on average to expunge meritless allegations from beginning to expungement. However, based upon language in FINRA’s last report, the process appears to be on a path to slow even further.
In February 2017, FINRA released its latest status report on the progress of the Dispute Resolution Task Force recommendations. One of the finer points that was buried within the 70-page document was that FINRA and regulators from the various states via NASAA (North American Securities Administrators Association) are “in discussions” to alter the current process for Rule 2080 expungements.
The first possible change on the table is to notify state regulators that the broker is seeking expungement through FINRA’s arbitration process. Currently, the states are not required to be notified and routinely have very little say in the outcome of the hearing. If changes are made to introduce another party, and a regulating agency at that, we assume that this will negatively affect both the duration and successful results for financial advisors seeking to clean up their U4.
While added time to obtain expungement can be a mere annoyance, the injection of another voice on the merits of each claim will likely push the currently high win-rate down significantly. States may want to merely “exercise their regulatory muscle” by attempting to oppose a majority of expungements. Even if they do decide to support the expungement, each state’s regulations differ wildly and each will have a vastly difference of opinion on the criteria needed to assuage any possible negative effects to the investing public.
The second option on the table, and possibly the worst outcome for the financial advisor, is that FINRA and the state regulators make good on addressing the, “feasibility of a new regulatory approach…”. Although the current Rule 2080 process has its inefficiencies, at the end of the day, an arbitration panel, typically made up of public arbitrators and outside of the purview of FINRA employees, decides the fate of the advisor. Inclusion of the customer dispute expungement process into a typical regulatory event risks subjecting the broker to the same unbalanced due process that FINRA usually affords its constituents in those circumstances. AdvisorLaw has represented many advisors through investigations and the OTR process (both regulatory events) and has seen first-hand the sheer lack of a fair and balanced procedure.
The takeaway from this report is that financial advisors who are looking to someday clean up meritless customer complaints from their U4, U5, BrokerCheck profile, and CRD need to seriously consider starting the process prior to any rule changes taking effect. Discussions are taking place as this is written and the outcome of these talks could limit, or take away, one of the few opportunities that FA’s have to clear their name and reputation.
EA, Executive Vice President
3400 Industrial Lane, Unit 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.