In its ongoing effort to protect the investing public, FINRA published Notice 18-15 which, among other things, compels firms to identify Advisors that require heightened supervision. Past misconduct - including Customer Disputes, Criminal Matters, Regulatory Actions, and Terminations - are all factors that firms are to consider in identifying Advisors needing additional oversight. On its face, it all seems very reasonable. Without a doubt the industry wants to rid itself of bad actors.
However, over the course of AdvisorLaw’s 165+ awards during 2017 and thus far in 2018 (which we boast a 91% win rate), we have helped confirm that the bar for a disclosure on a CRD is artificially low. An investor having a bad day can impact an Advisor’s career for years to come. With this background, FINRA now wants to use the same information as a basis to determine which Advisors need additional supervision.
Couple these factors with the new rule regarding the FINRA expungement process set to be promulgated in the near future. Advisors with spurious disclosures may find themselves singled out as “bad actors” with a much more difficult path to clear their name, but will nonetheless be required to submit to a regime of additional oversight.
What is an honest professional with a negative disclosure to do? We understand that the Advisor is typically caught up in circumstances which were out of their control. AdvisorLaw has handled hundreds of cases ranging from Customer Disputes to Criminal Convictions. And, as already mentioned, we win 91% of the time. Is it still cost-effective to wait and see?
As we have been continuing to report since December 6th, 2017, FINRA has proposed changes to gut the expungement process for financial professionals who seek expungement of meritless customer disputes under Rule 2080.
As we only represent the financial advisor, we talk to thousands of reps, nearly all of whom are enraged at the prospect of losing basic due process under the FINRA arbitration rules. Whether you currently have a meritless dispute, fear allegations being indiscriminately lobbed at you in the future, or simply wish to retain the basic American rights of "innocent until proven guilty" you should read our formal response to FINRA pointing out the problems with these new measures.
Including, and not the least of which is, FINRA's assertion that any customer dispute disclosures over 12 months old will NOT BE ELIGIBLE FOR ANY REMEDY under the new arbitration rules.
Aged false, erroneous, impossible and defamatory claims against you and your business will be permanent.
Monday, February 5th, was the end of the comment period. Now we wait on the decision of a "self-regulatory" organization that has done little to protect the livelihood of their own financial professionals.
Armin Sarabi, J.D.
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.
This blog is our ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.