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Award Date: March 31, 2023
Respondent Firm: Robert W. Baird & Co. Incorporated and First Allied Securities, Inc.
Claimant Representative: Doc Kennedy, MBA, J.D.
Case Objective:
A Michigan-based investment advisor and former broker with nearly 30 years of experience in the industry had three customer disputes on his records. The disputes were lodged between 2008 and 2012, and two had been settled. Seeking the advantages of navigating the industry with a clear record, this advisor reached out to AdvisorLaw to guide him through FINRA Dispute Resolution forum.
Case Summary:
The first dispute was lodged by a customer for whom our advisor had recommended a variable annuity, back in the late 1990s, when the customer was seeking an investment with market upside potential and guarantees. The annuity guaranteed the death benefit amount, as long as no withdrawals were taken. The customer did not expect to take any withdrawals at any time, nor did he until about 2004. Then, over the next four years, the customer took many, sizable withdrawals from the annuity, which reduced its death benefit. Then in mid-2008, the customer lodged a claim, falsely alleging that our advisor had told him that the annuity had a guaranteed return of principal. Baird denied the claim, yet it stayed on the advisor’s records.
The next customer had become a client of our advisor in the mid-2000s, when she was seeking information on the guarantees offered by variable annuities. Our advisor recommended a variable annuity from AXA. The customer purchased the annuity and was pleased with it. In 2010, her son convinced her to change the annuity’s representative of record to a friend of his who was an advisor with another firm. In the process of changing the representative of record, our advisor’s staff learned that it had failed to check a box when processing the original application. As a result, the customer had not received one of the annuity’s guarantees. Our advisor repeatedly reached out to the broker-dealers and AXA to address the issue, and no one responded to him for some time. The customer then complained about the amount of time it had taken to remedy the issue. She sought approximately $16,000 in damages, and the firm settled for the amount sought. Our advisor did not contribute to the settlement.
In the mid-2000s a couple became clients of our advisor. Our advisor recommended a diversified portfolio that included certain ETFs and mutual funds. The investments and portfolio as a whole performed well until the financial crisis of 2008. At that time, the value of the ETFs and mutual funds declined. The customers then liquidated their portfolio against our advisor’s advice. In 2012, they filed for FINRA arbitration, alleging breach of contract and fiduciary duty, violations of FINRA rules, and fraud. First Allied settled with the customers for $170,000, without asking our advisor to participate in the settlement discussions or contribute to the amount. Still, he ended up with a very negative claim with a large settlement on his public records.
Result:
The broker-dealer respondent firms participated in the FINRA Arbitration hearing on the matter, and they did not take a position on our advisor’s request for expungement. None of the customers participated. The Arbitrator reviewed documents and listened to our advisor’s testimony, as well as the arguments for expungement presented by Dochtor Kennedy, J.D., MBA.
Regarding the first claim, the Arbitrator specifically mentioned that the customer “was given a prospectus of a variable annuity with a death benefit which declined if there were withdrawals from the account. This was clear from the prospectus, but the customer said [that our advisor had] orally represented that it was a guaranteed [principal] regardless of withdrawals.” The Arbitrator also stated that Baird had “investigated and denied any wrongdoing by [our advisor].”
When considering the second claim, the Arbitrator mentioned that the matter had been “resolved to the customer’s and his new employer’s satisfaction” and determined that “The customer’s claim was clearly erroneous and false.”
For the third claim, the Arbitrator noted the declines of the customers’ portfolio amid the Great Recession and pointed out that “The effect of a portfolio with a significant equity balance was typical of other similar portfolios with a significant decline in value” and that, against our advisor’s advice, “the customers decided to liquidate the portfolio, thus preventing any recovery in the market recovery.”
Determining that all three of the claims presented met the standards set by FINRA for expungement, the Arbitrator recommended the removal of all references to the claims from our advisor’s records. After 15 years of suffering from the marks on his records, this advisor may now move forward with completely clean and clear public records.