Articles Tagged with fiduciary

Financial industry stakeholders are all locked in a guessing game about the fate of the DOL Fiduciary rule in the new Trump administration. In 2015, the Obama administration and the DOL had introduced the Fiduciary rule that requires financial advisers to always act in the best interest of their clients when handling their retirement savings and removing unnecessary fees. Wall Street had continued to oppose it on the grounds of excessive costs and paperwork. The initial implementation deadline for the rule is set for April 2017.

According to an Investment News report, industry lobbyists are now expecting a quick response from the seemingly “business first” Trump administration to delay this investment advice rule. They expect the Fiduciary rule to be one of the first targets of the new administration. This delay could come in the form of a directive to agency heads to review and delay regulations that are not operational.

There are two courses that are expected: the Trump administration may issue an order to delay the implementation of the fiduciary rule and have another regulation, an “interim rule” in its place. Or they could propose a delay but this would be tricky because for a rule that technically became effective last June, the administration is legally obligated under the Administrative Procedure Act to go through a public notice and comment period.

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

Last 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.

First Wells Fargo, now Morgan Stanley.

On the heels of Wells Fargo’s cross-selling scandal, the broker-dealer Morgan Stanley has been accused of inappropriately promoting  “securities based loans” to customers, according to an article published in the Wall Street Journal on October 3, 2016.  The complaint, filed by Massachusetts securities regulators, alleges that Morgan Stanley’s lax compliance and supervisory oversight led the broker-dealer to breach their own fiduciary duties owed to their wealth management customers by pushing the loans and minimizing the risks associated with the accounts.

If the allegations turn out to be true, the Massachusetts allegations would further exemplify the conflict of interest between broker-dealers pushing risky products on their clients without providing the balanced view of the products that industry rules require, which could be breaches of duties to certain of their customers.  At the very least, FINRA Rule 2111 requires that broker-dealers ensure that recommendations of products are suitable for each customer, which requires a careful assessment of each customer’s respective investment objectives, risk tolerance, age, tax bracket, other investments, liquidity needs, as well as other factors.

First, it was M.I.T., Yale and N.Y.U. Then, Duke University, Johns Hopkins, University of Pennsylvania, and Vanderbilt were sued for excessive fees in their employees’ retirement accounts, according to a New York Times report. With these class-action suits filed, let’s examine what are the common problems and allegations made against 403(b) plans.

403(b) plans, are similar to 401(k) retirement plans available to employees of public schools and nonprofit institutions like universities and hospitals. The most common allegation that has been reported against 403(b) plans is excessive fees that result in lost retirement savings for the investors. These universities reportedly used multiple ‘record keeper’ providers and paid excessive revenue sharing payments to these providers, amounting to millions of dollars in lost savings.

While the employee investors would have benefited more from fewer simplified options that leveraged economies of scale, there were 400+ investment options which were confusing for them and made them opt for duplicative strategies according the same news report. Allegedly, millions of dollars in retirement assets were unsuitably invested in underperforming funds in a retail share class as opposed to a less-expensive institutional share class. The investment advisors for these plans allegedly breached their fiduciary duty which mandates the reduction of excessive fees and conflicts of interest that erode retirement savings for all investors.

Trust Funds are an especially susceptible vehicle for fraud committed by FINRA registered stock brokers and financial advisors.  Two of the primary issues in such cases are “conflict of interest” and “breach of fiduciary duty.”

Trust funds can be created for a wide variety of reasons.  Frequently, though, they are used as a means to afford an orderly transfer of wealth to a younger generation.  They can offer a whole host of benefits that would make a trust fund the preferred choice over an outright gift.  For example, the recipient/beneficiary may be very young, and the trust could afford some level of control or stability to prevent the beneficiary from squandering the money.   Another reason may be certain tax advantages offered by the trust structure that would not be available in an outright give.

Regardless of the reason or reasons for its creation, a trust is going to need a trustee.  The trustee is the party responsible for overseeing the trust and managing its assets.  While trusts can hold different types of assets, they frequently contain securities, like as stocks and bonds. Therefore, such trusts would, by necessity, involve brokerage accounts.  In that case, clients will oftentimes look to their stockbroker/financial advisor to put on a “second hat” and serve as trustee.  The logic being “I already trust him/her with my money so why not let them be the trustee.”  However, this is where significant problems can be created.

This week, it has been reported that the Department of Labor proposed tougher laws after issuing new regulations requiring financial advisors and brokers managing 401k and retirement accounts to act in the best interest of their clients. These rules were proposed a year ago and after deliberating on it for a year, the White House has finalized these tougher requirements. However, it might be a year before these rules go into effect.

An academic study commissioned by the White House revealed that “conflicts of interest” in financial investing was costing Americans about $17 billion a year in retirement savings. Although brokers are required to only recommend “suitable” investments under the current “suitability standard”, they can push a more expensive product that pays a higher commission than a cheaper fund that would be equally appropriate for that investor.

The new rule fiduciary rule is aimed to at reducing fees and commissions that erode retirement savings and hold brokers to higher standards. It will cast a wider net on who is subject to the fiduciary standard.

The securities fraud attorneys at Malecki Law are interested in hearing from investors who have complaints against stockbroker Christopher T. Fenton.  Mr. Fenton is currently employed and registered with M&T Securities, Inc., a broker-dealer, working out of the Buffalo, New York office, according to his publicly available BrokerCheck, as maintained by the Financial Industry Regulatory Authority.  He was also previously registered with Pruco Securities Corporation.

According to his BrokerCheck report, Mr. Fenton has been the subject of three customer complaints while employed by M&T Securities, Inc.  The latest customer complaint led to a FINRA arbitration proceeding, according to BrokerCheck records.  The BrokerCheck records reveal that the customer alleged that misrepresentations, breach of fiduciary duty and recommendation of unsuitable investments were made.  The dispute resulted in an award to the customer, according to the BrokerCheck report.

A review of the award, publicly available from FINRA’s website, discloses that the claimant also alleged that the causes of action related to an M&T Portfolio Architect Account and Rochester Fund Municipals.  The award also disclosed that Mr. Fenton and his firm were found to be jointly and severally liable to the claimant for the award, as well as a portion of fees the claimant incurred in bringing the claim.

This week, the attorneys at Malecki Law sent letters to several United States Senate and House of Representatives members, urging them to support the Department of Labor’s (DOL) proposal to hold financial advisors to a higher standard and act in the best interest of retirement investors. These members of the Congress include the Honorable Charles E. Schumer, the Honorable Jerrold Nadler, and the Honorable Kirsten E. Gillibrand.

Millions of Americans have worked their whole life to build a retirement nest egg and count on their retirement savings to support them through their golden years. The DOL’s proposal addresses loopholes in the current rules that make it far too easy for some advisers to take advantage of these hard-working Americans and line their own pockets with retirement savings. Our system is so broken that brokers often can and do put their own interest in commissions above the interests of their clients, causing them to be in unsuitable products just so the broker could earn additional commissions.

When someone turns their life savings over to someone for advice, they believe their financial adviser is going to do what’s best for them.  We have never heard a client recount a story of a financial advisor that told them that they are not fiduciaries, in fact, we hear just the opposite.  We all see the advertisements on television that say the financial advisers are there to help us, but we need to know that financial advisers are obligated to put client interests first, as well as be able to receive that assurance in writing.