In April 2021, a currently registered broker and advisor (respondent) settled with the Financial Industry Regulatory Authority (FINRA) allegations that he violated FINRA Rule 2010 that someone reported to FINRA on its Securities Helpline for Seniors. Respondent did not admit or deny any findings in the settlement, but agreed to a $5,000 fine and 45-day suspension.
Allegations of failing to disclose client appointments to firm
The matter concerned respondent’s employment at a previous firm where he had registered as a general securities representative. He was alleged to have purposely not complied with the firm’s processes and procedures set up to protect clients. Specifically, the firm prohibited employees from holding official, personal positions of trust for firm customers as well as from accepting a beneficiary designation of a customer’s assets (except for clients who are also the advisor’s immediate family members).
Positions of trust
An 82-year-old client who is not related to respondent named him as the successor trustee of a living trust that would have transferred to respondent almost all trust assets when the customer died. The elderly customer also named the broker beneficiary of an annuity, personal representative of her estate, power of attorney and medical power of attorney.
FINRA alleges that he accepted but did not disclose to his previous firm the elderly customer’s appointments in violation of the employer’s rules and of Rule 2010. Rule 2010, Standards of Commercial Honor and Principles of Trade, provides that “[a] member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.”
New FINRA rule
Respondent’s questionable actions allegedly happened in 2019. In 2020, effective Feb. 19, 2021, FINRA adopted new Rule 3241, which specifically addresses this type of situation. The new rule, Registered Person Being Named a Customer’s Beneficiary or Holding a Position of Trust for a Customer, prohibits registered persons at FINRA member firms from accepting beneficiary designations from clients or positions of trust like trustee, executor of the customer’s estate or power of attorney (except for immediate family).
The rule requires the registered person to give written notice to their firm of the customer’s offer after which the firm is to approve or disapprove the appointment.
If you or a family member, especially one who is older or not sophisticated in securities matters, has named a financial advisor as their beneficiary or given them a position of trust, or if you were considering doing so or the advisor has brought this up, speaking to an attorney is a good idea. The lawyer can review the situation for signs of legal and ethical breaches on the part of the financial advisor and advise you of your options for correcting the situation or seeking a legal remedy.