Brokers offer financial advice to and transact a variety of securities on behalf of millions of investor households. Millions of Americans rely on their brokers to make complex long-term decisions about their retirement and long-term savings plans. Consumer Federation of America (CFA) published a report this week, “Financial Advisor or Investment Salesperson?: Brokers & Insurers Want To Have It Both Ways” that takes a look at when is an “advisor” really an advisor and when are they being salespersons. According to this report, people saving for retirement lose an estimated $17 billion a year or more as the result of the excess costs associated with conflicted retirement advice.

As per the report, it examined 25 brokerage firms, their services and marketing messages and found ambiguity in the way they market themselves to consumers and the way they defend themselves in an arbitration. They present their services to be advice-centric and themselves as trusted advisors in their marketing messages. According to the report, these were the common findings:

  • No website was found to have referred to their financial professionals as salespeople but as reliable advisors indicating that they have a level of sophistication and expertise

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Matthew Meehan.  Mr. Meehan was last employed and registered with E.J. Sterling, LLC, a Garden City, New York, broker-dealer, from November 2011 to October 2015, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority (FINRA).  He was previously registered with Aegis Capital Corp. from March 2010 to November 2011 and with Gunnallen Financial, Inc. from September 2008 to March 2010, according to BrokerCheck records.

In 2017, Mr. Meehan was fined and suspended from association with any FINRA member broker-dealer for 12 months by FINRA, after submitting a Letter of Acceptance, Waiver and Consent No. 2016050114901 .  According to the AWC, Mr. Meehan violated FINRA Rule 2111 (Suitability) and FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) because from January 2014 through June 2015, he exercised discretion without the customers’ written authorization to do so, and engaged in unsuitable trading in several customers’ accounts “resulting in annualized turnover rates of 12, 21, and 32, respectively, and annualized cost-to-equity ratios of 54%, 110%, and 179%, respectively.”  Trading at these levels of turnover and cost-to-equity ratios could be considered churning, which is defined as excessive trading by the broker in the client’s account to generate commissions.

FINRA Rules require that recommendations made by the broker to the customer be suitable.  This means that the broker must consider the investor’s age, investment experience, age, tax status, other investments, as well as other factors when making a recommendation to buy or sell securities.

whistle-257897-mBlackRock has been charged by the SEC with removing whistleblower incentives in their separation agreements with employees, per the SEC. According to the Commission, BlackRock’s charges stemmed from allegations that the company forced employees to waive their ability to obtain whistleblower awards.

Provisions such as those in Dodd-Frank provide for monetary compensation to those who provide information to the SEC concerning securities law violations, provided certain criteria are met. Whistleblowers may also file anonymously.

Per the SEC, over 1,000 employees signed such agreements, in which the employee was forced to waive the right to monetary recovery as a condition for receiving separation payments from the company.

Recently the Government Accountability Office (GAO) published a report about the extent of elder abuse by guardians and measures that exist to protect older adults. This has become an issue of utmost importance as the number of older adults, over the age of 65, are expected to nearly double to 88 million by 2050 (GAO Report 2016). A “guardian” is a legal relationship created by a state court by granting one person the authority and responsibility to make decisions on behalf of an incapacitated individual, like an older adult. The appointed guardian could be a family member, a professional guardian, or a public guardian. According to the GAO report the most common type of elder abuse inflicted by guardians appear to be financial exploitation. This GAO report attempted to identify red flags of abuse, study reported complaint data about guardianship abuse in 6 states- California, Minnesota, Florida, Ohio, Texas and Washington- and evaluate measures that are in place to help protect older adults.

The federal government does not regulate or directly support guardianship but they may provide indirect support through federal agencies, by sharing information and providing funding for state and local courts who oversee the guardianship process. There are limitations on the data available to study cases of elder abuse because states do not have adequate data on number of guardians serving seniors and not all cases of elder abuse are reported.  A close look at reported elder abuse cases since 2010, identified using public-record searches reveal instances of misappropriation of funds, falsified payments, mistreatment of the elderly, diversion of payments, overcharging accounts, excessive spending and inflated personal expenses, and neglect.

FINRA ’s Role in Fighting Elder Financial Exploitation

Retirement SavingsLast year, the Obama administration introduced the Fiduciary rule that requires financial advisers to always act in the best interest of their clients when handling their retirement savings. It was expected to be a big industry shakeup, making financial advice more reliable, compensating advisers with a flat-fee model and reasonable compensations, incentivizing them to really act on their client’s best interest as opposed to their own personal gain. The DOL’s Fiduciary rule was aimed at stopping the $17 billion a year that gets wasted in exorbitant fees.

The banks and Wall Street have continued to oppose this rule on grounds of lengthy paperwork and compliance expenses. Financial firms were anxious that once the rule is in effect, they will not be able to make as much money. Republicans have expressed that repealing this rule is on their agenda. Now with Trump as the President elect, and Republicans holding majority in both Houses, there is a fear that legislative action will be taken to kill the much-needed Fiduciary rule.

Joseph Peiffer of PIABA (Public Investors Arbitration Bar Association) was quoted in the InvestmentNews, “If he (Trump) wins, no one knows what the hell is going to happen.” Now that Trump has won, the fate of the rule hangs in the balance. There are others who think that the rule is here to stay, inspite of the unpredictability.

Securities & Exchange Commission (SEC) charged broker Marc Broidy and his firm, Broidy Wealth Advisors, for $1.4 million worth of ill-gotten gains, as per reports. It is believed that the firm profited off their client’s trusts by intentionally over-charging accounts.

It has also been reported that Marc Broidy allegedly used this money to finance his personal lifestyle, using the money to pay off mortgages, leases on his Mercedez-Benz cars and overseas trips. According to the SEC complaint, Broidy has misappropriated $865,000 from client’s accounts and billed $643,000 in excessive fees. He also reportedly misled clients by not disclosing his affiliation to certain private companies where investments were made. Briody Wealth Advisors had $25 million in assets under its management until this year, but the recent ADV from February 2016 reported $13.6 million.

According to an SEC risk advisory Office of Compliance Inspections and Examinations, they have increased their scrutiny of registered representatives. In Mr. Broidy’s case he “fell well short of his fiduciary obligations as an investment adviser”, according to SEC’s regional director.

The securities and investment fraud attorneys at Malecki Law are interested in hearing from investors who have purchased Variable Universal Life Insurance (VUL) policies.

According to Investopedia, VUL policies combine a death benefit with investment feature.  The investment feature generally includes sub-accounts, as with other variable annuities, that invest in stocks and bonds, or mutual funds that have exposure to stocks and bonds.  While a VUL investment feature may offer an opportunity to gain an increased rate of return by investing in securities, it generally comes with higher management fees and commissions.  As a result, these commissions and fees must be weighed against the risk of loss in the securities purchased.  These risks must be disclosed to the investor prior to investment.

Issues surrounding VUL policies are not new.  A U.S. News and World Report article from 2011 highlighted that these types of policies generally come with higher fees, fewer investment options and sometimes surrender policies.

As reported recently, the Financial Industry Regulatory Authority has commenced an investigation into the cross-selling activities of several broker dealers in the wake of the Wells Fargo fallout. FINRA’s objective has reportedly been to determine just how much cross selling is taking place (including promotion of products such as credit cards and loans) and what incentives are being provided to employees to engage in the conduct.

FINRA-new-300x150A FINRA spokesperson was quoted as saying, ““In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.”

Supervision at broker dealers is a very critical aspect of customer service. It is important that brokers and their firms are only promoting and selling products to customers that are appropriate for that customer and in the customer’s best interest. As has been shown by the Wells Fargo disaster, cross-selling incentive programs can compromise that goal by creating a conflict of interest.

Alliance for Investor Education and the PIABA Foundation is Hosting an Educational Conference about Securing Investors’ Financial Futures


National Town Hall
The National Investor Town Hall Meeting is a day-long series of presentations, free to the public, aimed at educating investors about the risks and rewards of financial investing. It will be held on October 29, 2016 at the Rancho Bernado Inn in San Diego, California. Many respected industry professionals, including Ms. Malecki and federal and state regulators will participate in four sessions to help attendees understand risk tolerance, choose financial advisors and avoid becoming victims of financial fraud.

“Financial fraud costs Americans approximately $50 billion each year. It has been my mission for over a decade to educate and empower investors, lending them a voice and holding big entities accountable for violating their fiduciary and ethical duties,” said Jenice Malecki, the founder of Malecki Law. She further adds, “I am excited to be part of this much needed grass-root investor education drive.”