One Financial Advisor’s Cautionary Tale

Contact: Daniel D. Hill

The old adage that “wisdom comes with experience” is not always true.  No matter how long you have been a financial advisor or broker, it is easy to lose sight of the right decision.  One broker in Washington state with 32 years of experience, and who was a branch manager for a well-known broker-dealer, found that out recently the hard way.

The Washington broker was recently barred by FINRA for failing to report that a 91-year-old, long time client – and friend – paid for gifts to the broker.  The client asked the broker to accompany him on a trip to Egypt and covered the cost of the broker’s trip.  On its face, it seems obvious that the broker should have reported the gift.  The broker-dealer’s policy on reporting such gifts is unambiguous.  As is often the case, however, the story is not so simple.

In this situation, the broker had ceded control of the client’s account management to a trust company years ago.  The broker thus argued she need not report the gift.  The account, however, remained registered in the broker’s name, and the broker – among other connections to the account – still received commissions related to the account.  The broker also defended the FINRA charges by claiming it was an honest mistake, and not an intentional wrong doing.  As a result, the penalty sought by FINRA – disbarment – did not fit the action.  Despite the broker’s years of experience and otherwise pristine record, however, FINRA issued an order barring the broker.  FINRA found that, given the broker’s extensive experience and managerial position, the broker should clearly have known better, which supported FINRA’s conclusion that the broker knowingly circumvented the disclosure rule.

Undoubtedly this is a painful story for many reasons.  If nothing else though, it is an excellent reminder to be careful with longtime clients, even if they become a good friend over the years.  If the adage about wisdom and experience does not do it for you, then perhaps another will:  You have to separate business from pleasure.

When you need a securities services law firm in Utah.

Our securities law attorneys are ready to help.  For more information about the services SCM provides in this area, contact Daniel D. Hill.

Utah Business Lawyer Daniel Hill

Daniel D. Hill