- Big Fines For Bad Records: How The SEC’s Recent Action Affects RIAs
- Financial Advisor Exodus: 2024’s Biggest Trends & Your Strategic Move
- Staying Compliant: Colorado’s 2024 Investment Adviser Examination Priorities
- Demystifying The Maze: Your Guide To RIA Compliance
- Unlock Access To Industry Awards: How Negative Disclosure Expungement Can Propel Your Financial Advisory Career
*If you’re under FINRA or SEC investigation, or if you have a meritless disclosure on your BrokerCheck, CRD, IARD, or IAPD record, call us right now at (303) 952-4025 to talk with an attorney and receive a priority consultation at no charge.
Case Objective & Summary:
This Virginia-based financial advisor had made it 15 years into his career with a single customer dispute when he was hit with a second dispute in 2020 that resulted from Covid-related market declines. Both of the disputes were settled, and the advisor knew that his actions had in no way affected the markets amid COVID-19. So he hired AdvisorLaw to seek expungement of the 2020 dispute through FINRA Dispute Resolution.
At the end of 2019, a couple became clients of the advisor through a referral. They hoped to earn a higher rate of return than what they could get in money markets and certificates of deposit. The advisor made recommendations based on the customers’ investor profile, including the firm’s portfolio management program (“PMP”). The PMP was appropriate for the customers’ objectives of growth and income and their long-term investment time horizon. The advisor explained all the risks and details of the PMP to the customers, and they chose to open a discretionary account and enroll in the PMP in January 2020.
The customers’ funds were in the PMP for less than three months, before the effects of the Covid pandemic set in. The markets reached their lowest value in 2020 by the end of March. Due to market volatility, the customers’ funds in the PMP declined. In early April 2020, the customers filed for FINRA arbitration, alleging that the investments in their discretionary account were unauthorized, along with a breach of fiduciary and negligence.
Despite the impossibility of investments in a discretionary account having not been authorized, as well as the fact that the customers were invested for the long term, yet they filed for arbitration three months in, the firm settled with them for $7,000 of the $27,000 in damages that the customers had sought.
While the firm participated in the advisor’s expungement hearing, it did not oppose his request. The customers declined to participate. The FINRA Arbitrator reviewed the documents submitted, as well as the events that transpired during the market crash amid the Covid outbreak. He listened to the advisor’s testimony and the arguments presented by Dochtor Kennedy, MBA, J.D. and Harris Freedman, J.D.
In his Award, the Arbitrator specifically noted that “At the time they opted for the [PMP], the Customers advised [the advisor] that their investment goal was growth and income…and their investment horizon was 20 years.” He specifically mentioned that “Prior to the Customers entering into the PMP, [the advisor] advised the Customers of the conditions of the PMP[, ] as well as the risks associated with the program.” The Arbitrator then noted the important fact that “On February 20, 2020, stock markets around the world crashed as a result of the fear of the Covid-19 pandemic” and that, “On April 6, 2020, one day before the market began to stabilize, the Customers filed a claim with FINRA[.]”
The Arbitrator concluded that “there was no factual basis to support the claim of the Customers” and that, “What occurred in February 2020, was not the result of an action or inaction” on the part of the advisor or the firm. Based on the aforementioned facts, the Arbitrator recommended the expungement of the claim.
Soon this advisor can move forward free of allegations against him due to the completely unforeseen, global pandemic, over which he had no control.