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A 45-plus-year veteran of the financial services industry had five customer disputes that had accumulated on his public BrokerCheck and CRD records between 2013 and 2018. The customers had sought damages in the hundreds of thousands of dollars, and while some of the claims were denied, others had been settled by the firm. The Massachusetts-based advisor hired AdvisorLaw to try his hand at expungement in the FINRA Dispute Resolution forum.
In 2008, a couple in their 70s sought our advisor’s help with replacing their pension with life insurance and estate planning. Our advisor recommended a managed portfolio, long-term-care insurance, whole life insurance, and a variable annuity that provided guaranteed income to fund the life insurance. After about a year and a half of funding the insurance policy, the customers expressed concern about the overall cost of its premiums. The advisor worked with the customers and found a solution for the funding through income from their rental properties. Additionally, while the wife had initially been denied long-term-care coverage, she was re-evaluated and approved, which reduced the customers’ premiums on the policy. The customers were satisfied and continued to work with the advisor for five more years, over which time, their accounts grew by over $100,000. But then, in April of 2013, a dispute by the customers hit the advisor’s records, alleging unsuitability and that the couple was now unable to afford the policy’s premiums. The firm settled it for about $60,000.
A second couple who had become clients of our advisor in 2006 purchased a variable whole life insurance policy through our advisor. The husband subsequently passed away, and the policy paid $1 million to the wife. The wife’s policy would remain in force for her lifetime, as long as the premiums continued to be paid. Nevertheless, the wife complained directly to FINRA in 2017, and our advisor received a second dispute alleging unsuitability and falsely stating that the policy would expire when the wife turned 64. The claim was denied, but it remained on the advisor’s records.
In 1992, a 65-year-old retired teacher and coach sought spousal protection, as he had retired with a municipal pension that did not have a spousal benefit. Our advisor referred the customer to a mortgage broker, through whom the customer then obtained a reverse mortgage. In 2007, the customer purchased a recommended variable whole life insurance policy with a long-term-care rider through our advisor. In 2017, four years after leaving the firm, our advisor received a dispute on his records, claiming that the customer could not afford the policy that he had purchased. Despite the fact that the firm settled with the customer for $90,000, the customer filed for FINRA arbitration a year later. The advisor ended up with a second claim on his records — this time with a slew of allegations and seeking damages of half a million. After a full hearing, the FINRA Arbitration Panel ruled in favor of the advisor and denied the damages. Yet our advisor ended up with two, separate customer disputes from the debacle.
The final dispute came from a customer who had been with our advisor since 1992. After her husband passed away, she was interested in a longer-term investment that would generate income. The advisor and customer discussed a variable whole life insurance policy, which the customer could overfund so that it would potentially generate tax-free income through withdrawals. The customer-funded the contract on a quarterly basis, directly with the insurance company. She and the advisor met on 11 occasions over the next 10 years, and the customer’s file was audited twice annually during that time. Subsequently, the advisor terminated his affiliation with the product sponsor and left the firm. As of that time, he was no longer working with that customer. Five years later, in 2018, the advisor received a claim from that customer, alleging that he had misled and taken advantage of her by selling insurance that she had not needed. The customer sought $180,000 in damages, and the firm settled for under $6,000. But as we know, the mark sat on the advisor’s record since that time.
The firm participated in the FINRA expungement hearing and did not oppose any of the advisor’s expungement requests. Though all were notified and had the opportunity, none of the underlying customers participated. The Arbitrator reviewed the settlement documentation, pleadings, exhibits, and the advisor’s records. He also listened to the facts and arguments presented by Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D., as well as the advisor’s testimony. In a ten-page award, the Arbitrator outlined his reasoning for determining the claims’ eligibility for expungement, as well as the basis for each decision.
Regarding the first customers, who had alleged unsuitability and that they could no longer afford their premiums, the Arbitrator specifically pointed out that the advisor had “introduced exhibit #2 to support his case: [the insurance company’s] illustration of the customer’s Variable Annuity Life Insurance Policy.” The Arbitrator mentioned that the advisor had “also set up the customer and her husband under a long-term[-]care insurance policy,” and that the customer “was initially denied coverage due to health status, but later qualified which also resulted in a reduction of premiums on her life insurance policy.” The advisor’s testimony indicated that “he held over 30 meetings with the customer in 2011 and 2012, in none of which did the customer express any dissatisfaction with her situation. In fact…the value of her portfolio had increased by $100,000.00 by 2012, even after discounting the cost of the insurance policy premiums.” The advisor alleged that the customer concluded that she was paying too much for the policy “after being wrongly advised by [another] financial advisor that she could save 40% in the cost of the policy,” yet that was because the customer’s premiums had been reduced “due to improved health, notably a loss of weight.” Ultimately, after evaluating the advisor’s testimony and “in view of the well-settled premise that suitability of an advisor’s recommendations are determined at the time that they are made,” the Arbitrator determined that the recommendation had been suitable and that the customer had been able to afford the premiums, “ especially after qualifying for a 40% discount.”
The Arbitrator responded to the second dispute in a similar manner. First, the advisor exhibits “support[ed] his testimony that the Policy was in force for the customer’s entire life, or at least until 2026, so long as she continued to pay the required premiums.” In fact, the exhibits showed that, in the 11th year of the policy, “the customer engaged in a tax-free exchange at the advice of another broker with whom [our advisor] was unaffiliated, and [she] stopped paying on the subject Policy. In addition, [she] had received a death benefit of [$1 million].” The Arbitrator agreed that the allegations were both factually impossible and erroneous.
The Arbitrator noted that the third customer filed an initial claim and, “even after [receiving a] settlement, ]sought further relief by filing for arbitration with FINRA seeking again $500,000 in damages.” The Arbitrator noted that the Panel had denied that customer’s claim, “because it was well outside the applicable statute of limitations,” though the Panel had also noted that, “had it been timely filed, the claim would have been denied in any event due to insufficient evidence.” The Arbitrator cited the advisor’s testimony in that any claim that he had recommended a reverse mortgage was false, as that “instrument was recommended by a mortgage broker with whom [our advisor] was unaffiliated.” The Arbitrator mentioned that the policy at issue had been suitable and that the customer had paid its premiums “for many years before filing any complaint.” The Arbitrator found there to be “no evidence that [our advisor had] encouraged or participated in the customer’s purchase of a reverse mortgage” and that there was no evidence to support the customer’s claims alleged in his arbitration filing.
Regarding the fourth claim, the Arbitrator reviewed the client relationship history and the implementation of the policy at issue, as well as the advisor’s testimony that “the customer never indicated [to our advisor] that she was unable to service the premiums.” The Arbitrator noted that the customer filed a complaint after the advisor left the firm, but “What she did not state was the Policy had increased in value and that her withdrawals exceeded the premiums which she had paid in,” as well as that “the customer had ceased paying the premiums on the Policy in an amount adequate to maintain it.” The Arbitrator found that the advisor had “performed his obligations sufficiently in this matter” and determined the allegations to be clearly erroneous and false.
With the expungement of five, significant customer disputes from his public BrokerCheck and CRD records, this veteran advisor can move forward with a substantially cleaner record, thanks to AdvisorLaw’s Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D.
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