FINRA Sanctions Advisor for Settling Away

On August 31, 2017, FINRA sanctioned a financial advisor for settling a customer complaint away from his br0ker-dealer. In case #2015047287101, FINRA accepted a Letter of Acceptance, Waiver and Consent (AWC) from an advisor who had been registered with Morgan Stanley. According to the AWC, the advisor, over the course of about a year, received three separate complaints from the same client about the amount of commissions the advisor had charged the client. The advisor did not forward the complaints to his firm, but rather, paid the client a total of $12,203.23, by way of three separate checks issued to the client’s wife. FINRA found that such conduct violated Rule 2010, and they suspended the advisor in all capacities for 15 business days and fined him $10,000.

This is not a novel type of case, but it is one that you don’t see too often. And, sadly, this is a situation where the enforcement action was entirely preventable. If you, as a financial advisor, believe that some type of settlement with a client is appropriate, be sure to clear it with your firm first, and have them involved in the process. Otherwise, you might face internal discipline with your firm up to termination, as well as regulatory action like this.

In addition to the regulatory impact, it is possible that from a civil liability perspective, these payments could be viewed as an admission of wrongdoing. And, without a properly drafted settlement and release agreement, the client may be able to pursue other damages from the advisor and firm. Accordingly, the bottom line for advisors is to not settle a client complaint away from the firm.