Bankers Become Brokers, Inviting Supervision Concerns

A recent article on caught our attention because of the fascinating--and potentially worrying--trend that appears to be sweeping the financial industry. It’s also a trend that’s worth knowing about if you’re looking for a financial advisor or are considering one who works for a bank. That’s right, a bank. As the article points out:

“Banks are expected to increase their wealth management assets overall to $7.5 trillion by 2018 from $5.8 trillion through their bank-affiliated brokerages and other operations.”

Traditionally, banks and brokerages have worked opposites of the financial street. But according to figures from a Boston-based research firm, that is rapidly changing. Banks that downsized after the Financial Crisis of 2008-9 have apparently been swelling their ranks over the past few years by adding brokers instead of bankers to empty desks and branches across the country.

The worrying part of this trend involves supervision--or in industry parlance, “reasonable supervision.” Since brokerages have long been scrutinized and regulated by the SEC and its watchdog wing, the Financial Industry Regulatory Agency (FINRA), they have for the most part internalized the supervisory mentality. Typically, these brokerages employ in-house compliance officers who carefully review and sometimes audit brokers to ensure they comply with federal securities laws. Banks, on the other hand, are relatively new to the brokerage game. Industry cognoscenti and regulators are concerned that banks who aggressively solicit clients for wealth management may not be as savvy or rigorous in their implementation of supervision. Indeed, according to FINRA, there has been a recent spate of disciplinary actions taken against brokers working for banks, specifically at JP Morgan Chase and Citigroup.

What does this mean for investors? Supervision is a vital part of the checks-and-balances of the brokerage system in which investor operate and, hopefully, increase their wealth. Internal compliance officers not only impose company policy and procedure, just as importantly they also protect customers against negligent or rogue brokers. Supervision is far from perfect among traditional brokerages. But whether banks can prove they will supervise their new brokerage arms with at least the same consistency as their competitors remains to be seen.

If you or anyone you know has been the victim of broker misconduct, please contact us immediately at 215 462 3330 or via email at