Losing potential business due to customer complaints on your BrokerCheck report is bad enough, but it isn’t the only cost of having FINRA U4 disclosures on your CRD.
Today, most clients search online before setting up an initial meeting with a financial advisor. I’ve heard people say, “You don’t go to lunch in a new part of town without checking Yelp--why wouldn’t you check online before discussing your million-dollar portfolio?”
When FINRA began requiring advisors to include a link to their BrokerCheck profile in 2016, they opened the door for existing clients to review an advisor’s record and potentially take their business elsewhere should they find any negative disclosures. For financial advisors with unfounded and unwarranted customer disputes in their careers, it’s impossible to avoid thinking about how many prospects they’ve lost because of the negative disclosures on their FINRA BrokerCheck report.
Bogus FINRA U4 disclosures can lead to a loss of existing customers
Lost opportunity is not the only cost involved with unexpunged customer disputes. What about the time, money, and effort an advisor and their staff lose each time they have to explain a bogus incident?
Consider this example: You are licensed in Missouri, and most of your clients are in Missouri, but then Bob and Mary decide to follow their kids to Arizona. Bob and Mary are one of your top households, and you have been their planner for 25 years. They want you to keep working for them, so you need to get licensed in Arizona.
To get that new state license, you once again need to explain bogus customer allegations and misunderstandings that occurred 15 years ago, like that one time a customer misread his annuity statement, blamed you for losing $30,000, and wrote a scathing letter to your manager about the loss. You and your manager later discovered that the so-called “financial loss” was a simple misunderstanding caused by a subaccount reallocation, but FINRA still required you to report the alleged sales practice violation on your public BrokerCheck record until the end of time. As a result, you now have to explain the situation every time you are working to retain clients you’ve successfully worked with for 25 years.
It’s likely that you have a paragraph or two on hand for these types of situations, but do you really have the time and emotional energy to explain this incident over and over again? In addition to annoyance, there is a sense of injustice, because “Ole Mr. Johnson couldn’t read a statement to save his life, rest his soul,” and now you have to justify yourself for the remainder of your career.
In many cases, advisors have registrations in more than one state, and most advisors are able to drop and add states at the end of each year based on the needs of their practice. However, those with U4 disclosures may have to keep a state they don’t need or may have to hand a client in a specific state over to a partner simply so they can avoid the hassle of explaining the BrokerCheck disclosure. If you try to measure the cost in time, inconvenience and missed opportunity in this scenario, you will undoubtedly end up frustrated.
False FINRA U4 disclosures can inhibit career growth
Similarly, each time an advisor works with a new insurance company to add new insurance products to her offerings, she has to get appointed with that company. If she has any disclosures on her record, an otherwise simple process turns into an inconvenience and/or a loss of opportunity clients. Even if the insurance company approves the appointment, what about the cost of the time and effort to complete the process that simply would not exist for someone with a “clean” BrokerCheck report?
Advisors with designations like the CFP® find themselves having to provide a complete explanation of the customer allegations to yet another entity. All of a sudden they find themselves answering questions like, “What was Mr. Johnson’s risk tolerance? What was his time horizon? What was his age? What was his investment experience? Was the annuity even suitable for him in the first place? How long did he hold it? Was it in his IRA? If so, why? Was he taking income? How were the subaccounts allocated?” While it may be easy to answer all of these questions, it has been 15 years since you made your recommendation, and no one enjoys the process of constantly being held accountable for something they did not do.
What is the cost of having to repeatedly explain the invalidity of this supposed customer complaint, just to ensure that you can continue working successfully in your profession? The answer, of course, is your very own career growth. As long as the U4 disclosure remains on an advisor’s record, the costs of negative disclosures on their BrokerCheck record reach far beyond the cost of potential lost opportunity and will recur when they acquire new clients, change firms, offer new products, seek new licensures, and beyond.
Michelle Atlas, J.D.
Believe it or not, many AdvisorLaw clients are financial advisors who fired their previous attorney and hired us to represent them in a FINRA customer dispute or U5 termination expungement case that was being botched. On the heels of our success with customer dispute disclosure expungements through FINRA arbitration, we have seen firms pop up, one after another, presuming that they can have equivalent success, solely based on AdvisorLaw’s high-performance track record. Unfortunately, just because a Kia and a Ferrari may have the same general, aerodynamic shape, does not mean that they can both achieve the same quarter-mile time. FINRA Rule 2080 expungement is a race track that has many twists and turns—it’s never a Sunday drive down a country road.
Is your firm full of attorneys who typically represent B-Ds against nuisance claims by investors?
Do they often conveniently settle out?
If so, they are woefully behind the curve of understanding all angles that are key to actually fighting the merits of these customer complaint that show on your BrokerCheck profile. Indeed, the individual merit of a customer dispute takes a back seat to simply calculating a “cost to the firm.” They might as well just be accountants. Of course, these are the same compliance attorneys who told you not to worry, that they’ll take care of it, and you ended up with a nice, glaring, meritless disclosure on your BrokerCheck and Form U4. So much for defending your good name.
Is your firm under-resourced? Does it only have a couple of employees, or, worse, is it a one-man shop? Will it even be solvent a year from now, at the close of the case?
This BrokerCheck dispute process is built on numerous elements that strategically combine to create the final product:
One person simply is not an expert at all parts of a FINRA expungement arbitration—a small engine can’t deliver the torque that a muscle car can. If you pop the hood at AdvisorLaw, you can see all of the components that give us so much horsepower.
Does your attorney only talk about how they are cut rate? Are they elusive when asked about past results?
One sure thing in life is that you will get exactly what you pay for. Do not fall for the sales pitch or false promises. Do not fall for evasive answers to these questions. Please, do not fall prey to the exact firms that FINRA itself has warned advisors about. You don’t want to put in all the effort to prepare for the race only to blow your engine just off the starting line.
With AdvisorLaw, it’s easy to get all of your questions answered, without any spin. The test results of our high-performance engine speak for themselves.
AdvisorLaw prominently displays the raw data, verifiable at FINRA, that shows exactly who we are:
When you start weighing these factors, you can see why many advisors ditch their lemon on the side of the road to upgrade to AdvisorLaw. We can help you protect your livelihood.
Executive Vice President
This blog is our ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.