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Award Date: February 10, 2022
Hearing Site: Seattle, Washington
Respondent Firm: Equitable Advisors, LLC, and J.P. Morgan Securities, LLC
Claimant Representative: Dochtor Kennedy, MBA, J.D.
Case Objective:
A 30-year veteran of the financial services industry sought FINRA expungement of three customer disputes, two of which we settled, dating back to 2003.
Case Summary:
When the advisor was just beginning her career, her mother-in-law brought her business to the advisor. The advisor’s supervisor sat in on the client meetings, during which the advisor and mother-in-law discussed rolling over a retirement account from a previous employer to a variable annuity. The advisor checked with the state’s system and was told that the mother-in-law’s retirement plan was eligible for a rollover. However, upon execution, the state charged the mother-in-law a 50% penalty. The mother-in-law did not want a complaint to affect the advisor’s record, but she needed to seek recovery of her funds. The firm settled with the mother-in-law by posting the missing funds to the variable annuity account, and the advisor’s errors and omissions insurance covered the settlement.
The second claim arose from a customer who had been heavily invested in several annuities with surrender schedules. The advisor had recommended A-share mutual funds that could be purchased at net asset value. The funds were suitable for the customer, and the advisor explained all details, including the 18-month contingent deferred sales charge (CDSC). The customer told the advisor that he wasn’t concerned about the CDSC, as he planned to hold the investment long-term and possibly for the remainder of his lifetime. The customer purchased the fund, and it increased in value. He then chose to pay off his mortgage less than one year later. The customer requested that the fund be liquidated. The advisor experienced a delay in the liquidation, and it was transacted two days later. She then attempted to obtain credit for the CDSC that the customer had paid. Nevertheless, she was hit with a customer dispute alleging a failure to disclose fees, unsuitability, and failure to follow instructions. While the customer sought over $5,000 in damages, the firm settled the claim for less than $70.
Result:
Dochtor Kennedy, MBA, J.D. took the advisor through the FINRA arbitration process and was able to illustrate to the Arbitrator that the removal of the disclosures would not adversely affect investor protection. The Arbitrator pointed out that the error that led to the first claim was made very early in the advisor’s career and that the misrepresentation had been unintentional. Additionally, because the representation was made under a supervisor’s guidance, the Arbitrator stated that “[t]he fault lies with the supervisor.”
Regarding the second dispute, the Arbitrator deemed the allegation to be false. The mutual fund had been suitable for the customer at the time of purchase, as he “represented that he intended to hold the funds for longer than three years.” While the fund had been suitable and the advisor had not failed to disclose fees, she had in fact been responsible for the delay in liquidating the mutual fund. However, the Arbitrator recommended expungement, writing that, “absent expungement, the BrokerCheck report is misleading[,] as the investing public will believe [that the advisor] made three violations[,] when in fact there was only one.”
The advisor will soon be able to boast a pristine public record as she continues her career in the financial services industry.
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