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Award Date: February 6, 2024
Claimant Representatives: Dochtor Kennedy, J.D., MBA, and Harris Freedman, J.D.
Respondent Firm: Merrill Lynch, Pierce, Fenner & Smith Incorporated
Case Objective & Summary:
After more than 30 years in the financial services industry, this Ohio-based advisor was ready to try his chance at expunging the only marks on his public record — four customer disputes that he had incurred between 2001 and 2005. The advisor hired AdvisorLaw to bring him through the FINRA Dispute Resolution process.
Summary:
Around 1999, an investor with an existing account at the firm became a customer of our advisor. The investor had made an independent decision to invest her 401(k) plan entirely in stock mutual funds. The advisor ascertained the investor’s profile and made various recommendations for more diversification. In mid-2000, purchased high-growth mutual funds against the advisor’s advice. She subsequently purchased a retirement annuity. When the mutual funds and annuity declined along with the market events in 2001, the investor alleged that the sale of the annuity had been unauthorized. The claim was denied but remained on the advisor’s records.
The next investors had been clients of the advisor since the 1980s. In 1995, the husband passed away, and the wife inherited the couple’s portfolio. In 1997, the wife agreed to liquidate a portion of her concentrated stock and purchase other investments for diversification. She then made additional, unsolicited purchases of a single stock, which subsequently declined and was liquidated for a loss. When she passed away, her daughters brought a claim against the advisor, alleging unsuitability. That, too, was denied, but it remained on the advisor’s records.
The next customers had also been working with the advisor since the late 1990s. Around 1997, they decided to engage in margin trading, and they also began taking increased monthly distributions from their portfolio. While the portfolio performed well, the customers’ increasing margin balance and withdrawals eventually depleted their portfolio, and they filed a claim alleging unsuitability. As with the first two claims, this claim was also denied, yet it’s since plagued the advisor for nearly 20 years.
The fourth and final claim was lodged by a couple who began working with the advisor around 2000. As part of his recommendations for diversification, the advisor recommended a CD laddering strategy and two growth stock mutual funds. While the funds declined with the markets around 2000, the investors refused the advisor’s suggestions for other investments. Ultimately, they lodged a claim alleging unsuitability. As with the rest of the disputes, the firm found no merit to the fourth claim and denied it.
Result:
At the FINRA Dispute Resolution hearing, the FINRA Arbitrator reviewed all documents submitted and listened to the advisor’s testimony, as well as arguments presented by Dochtor Kennedy, J.D., MBA, and Harris Freedman, J.D.
Regarding the first claim, the Arbitrator noted that “In fact, the customer authorized the purchase of the annuity on multiple occasions” and that the firm’s “investigation resulted in a denial of the customer’s complaint.”
After listening to the details of the second claim, the Arbitrator noted that the advisor had “recommended a diversified portfolio that included five equities that [the firm’s] analysts recommended,” that “One of the equities declined due to a stock market decline,” and that “The customer’s daughter filed a complaint near the expiration of the statute of limitations and claimed that the one stock was unsuitable.”
The Arbitrator noted that, in the third instance, the advisor “recommended a diversified portfolio to provide income to the customers” and that “The customers failed to accurately inform [the advisor] of their need for monthly income.” As a result, “Over a period of time, the customers began to increase their monthly income withdrawals that exceeded the income their account generated,” and, “Also, there was a stock market decline that had consequences for their portfolio.”
Regarding the fourth dispute, the Arbitrator pointed out that the advisor had “recommended a moderate risk diversified portfolio that included growth and some income” and that “A stock market decline caused a reduction in value of the equity portion of the portfolio, but not the other two portfolio assets.” He stated, “The customer was given an opportunity to liquidate the portfolio but declined.”
The Arbitrator recommended the full expungement of all four of the claims from the advisor’s records, meaning that he will soon have picture-perfect CRD and public BrokerCheck records with which to continue his third decade in the industry.