In addition to fierce competition for business, increasingly strict regulatory oversight and the need to navigate volatile markets registered brokers and financial advisors registered with the Financial Industry Regulatory Authority (FINRA) are also saddled with the requirement for their entire regulatory and business history to be accessible to prospective clients and the general public.
Unlike professionals in other high-liability professions, such as doctors, lawyers and accountants, a financial advisor or broker is generally required to disclose every single instance in which a customer made a complaint regarding the quality of service rendered or the soundness of the advisor’s strategy. This is so even when a customer took no other action than to raise an issue with the advisor’s broker-dealer and whether or not the complaint itself is deemed to have any merit. While there are certain monetary damages thresholds that are considered in the disclosure process, for the most part reporting firms in which the advisor or broker is associated err on the side of reporting all written complaints.
FINRA curates a website called Brokercheck that allows the general public to search for any registered advisor or member firm to review their entire regulatory history. The ability to make an advisor’s record available for scrutiny at the literal push of a button could have significant impact on that advisor’s ability to grow his or her business, purchase or sell a business or even to continue operating as both agency regulators and the individual states seek to “weed out” advisors with problematic histories.
While the disclosure process is meant to protect would-be customers from those advisors with a pattern or practice of negligent or other wrongful behavior, often times advisors with established decades-long careers running a successful and ethical practice will be saddled by one or two complaints – referred to as “occurrences” in industry parlance – that were without merit or never fully resolved, which linger on an otherwise unblemished record like a scarlet letter. In instances where a prospective customer, partner or even an employer reviews these items, the end result can range from embarrassment to lost business or career defining opportunities.
There is, however, a proverbial light at the end of the tunnel. FINRA’s alternative dispute resolution forum does provide a mechanism by which brokers and advisors can seek to “expunge” such a complaint (or occurrence) from their record where they are permitted to make proffers of evidence to demonstrate that the complaint in question had no merit. Indeed, FINRA Rule 2080 governs applications for expungement and provides a relatively fast and efficient procedure for the review of historical marks or occurrences and, where appropriate, the removal or expungement of these items. While the expungement process is no secret in the industry, many brokers and advisors fail to take advantage of the proceeding to remove problematic marks from their record. This is perhaps a conflation of two factors:
- the confusing nature of the process without the benefit a clear overview and
- the fear of cost and uncertainty that always accompanies litigation of any kind.
In actuality, the process as governed by FINRA Rule 2080, as it stands, is efficient and streamlined. Advisors seeking expungements are required to file a Statement of Claim in arbitration and name the broker-dealer or entity that disclosed the occurrences at issue as the party respondent. These arbitrations are treated by FINRA as single arbitrator proceedings, rather than a full three (3) arbitrator panel. Advisors are required to provide notice of the hearing to the original complaining customers to allow these parties to appear or object during the proceedings.
Also, per the current iteration of the rule, advisors can look back to any point in their career with respect to an item they seek to expunge.
The rule provides that an arbitrator shall recommend the expungement of an occurrence in the event it can be shown that
- the claim, allegation or information is factually impossible or clearly erroneous;
- the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or
- the claim, allegation or information is false.
In the event the expungement award is granted, it must subsequently be confirmed by petition in a court of competent jurisdiction where the advisor resides.
Offit Kurman has extensive experience in assisting advisors in seeking the expungement of their public records and has obtained successful results for many advisors throughout the industry. We offer free initial consultations to determine whether a particular complaint or occurrence is expungable and offer comprehensive services for this work at very competitive rates.
FINRA has considered amending this rule in order to shorten the look-back period and require additional scrutiny prior to awarding expungement relief. To the extent that advisors are in need of such relief, they should strongly consider mobilizing in that direction before any rule changes take effect.
ABOUT LOUIS TAMBARO
Mr. Tambaro is a commercial litigator with concentrations in the areas of financial services and franchise law. In his practice, he regularly handles the representation of independent broker-dealers, RIAs, wealth management firms, and individual financial advisors/planners in all facets of their businesses including transactional, litigation (including broker expungement applications) and regulatory matters, as well as in a plethora of other fields. He regularly litigates in the State and federal courts of New Jersey and New York and in alternative dispute resolution forums such as the Financial Industry Regulatory Authority (FINRA) and the American Arbitration Association (AAA). Mr. Tambaro brings a unique perspective and understanding, as he couples his experience in private legal practice with extensive entrepreneurial experience as a co-manager of a recruiting branch office in one of the largest independent broker-dealers in the United States.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With 14 offices in seven states, and the District of Columbia, and growing by 50% in two years through expansions in New York City and Charlotte, North Carolina, Offit Kurman is well-positioned to meet the legal needs of dynamic businesses and the individuals who own and operate them. For over 30 years, we’ve represented privately held companies and families of wealth throughout their business life cycles.
Whatever and wherever your industry, Offit Kurman is the better way to protect your business, preserve your family’s wealth, and resolve your most challenging legal conflicts. At Offit Kurman, we distinguish ourselves by the quality and breadth of our legal services—as well as our unique operational structure, which encourages a culture of collaboration and entrepreneurialism. The same approach that makes our firm attractive to legal practitioners also gives clients access to experienced counsel in every area of the law.
Find out why Offit Kurman is The Better Way to protect your business, your assets and your family by connecting via our Blog, Facebook, Twitter, Instagram, YouTube, and LinkedIn pages. You can also sign up to receive LawMatters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.
DELAWARE | MARYLAND | NEW JERSEY | NEW YORK | NORTH CAROLINA | PENNSYLVANIA | VIRGINIA | WASHINGTON, DC