bad stock broker

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


Nowhere to Hide for Brokers with a Checkered Past

Slowly but surely, reform and greater accountability is coming to the financial industry. In the aftermath of the financial crisis of 2008-9, the Obama administration promised Americans that it would tighten the grip on a roguish financial industry that put the economic health of the entire country in jeopardy. Although not all that much has happened since, a series of recent amendments and expansions by the SEC and its regulatory body, FINRA (Financial Industry Regulatory Authority), suggests that change, although slow to arrive, is finally on the way. In our previous post, we mentioned proposed amendments to SEC and FINRA rules and regulations that would give them the ability to inflict more financial pain on not just crooked stock brokers but the brokerage firms that sponsor them. Since many brokers who come under fire by FINRA end up going bankrupt, preventing their victims from seeing any rewards even when they win arbitration, holding large brokerage houses with deep pockets accountable increases the chances that victims will get some of the money back--and encourages stricter compliance within the brokerages themselves, in order to avoid future losses.


More recently, the SEC has quietly approved several important amendment to FINRA Rule 8312 which involves the expansion of information provided by FINRA's BrokerCheck. If you haven't checked out BrokerCheck yet, you should. It's an incredibly powerful and useful tool in the fight against broker misconduct, since it makes available to everyone from attorneys and hiring brokerage firms to novice investors information about stock brokers who have run afoul of the regulatory system. Thanks to the recent amendments, there will be more information available about bad stock brokers than ever before. The expansions are described by FINRA in its Regulatory Notice 10-34

(1) make publicly available in BrokerCheck all historic customer complaints that became non-reportable after the implementation of Web CRD;
(2) permanently make publicly available in BrokerCheck information about former associated persons of a member firm, as reported to CRD on a uniform registration form if they were (a) convicted of or pled guilty or no contest to certain crimes; (b) subject to a civil injunction involving investment-related activity or found in a civil court to have been involved in a violation of investment-related statutes or regulations; or (c) named as a respondent or defendant in an arbitration or civil litigation in which they were alleged to have committed a sales practice violation, and which resulted in an award or civil judgment against them;
(3) expand the BrokerCheck disclosure period for former associated persons of a member firm to 10 years from two years; and 
(4) codify FINRA’s current process for disputing the accuracy of (or updating) information disclosed through BrokerCheck.

By supplementing the information FINRA already includes in BrokerCheck searches, they are closing the net on brokers whose infractions pre-dated the implementation of Web CRD (the equivalent of badge or serial numbers for brokers, which stay with them wherever they go) and providing more comprehensive records on the relationships between rogue stock brokers and the brokerage firms that hire them. Amendment (3), especially in relation to the increased liability discussed in the post linked to above, harbingers a new era in financial industry regulation where not just individual brokers who can easily take shelter under bankruptcy laws are held accountable for misdeeds, but where major brokerage firms are also effectively on notice that supervision is an absolute necessity and increased liability a new way of life.

These are promising developments for investors who are still feeling the sting of perhaps the second worst economic calamity in our country's history. Change is here.

As always if you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately here or call 1-855-462-3330.