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FINRA ‘Cracks Down’ on High-Risk Brokers. What About Management?

Posted by Larry Doyle on November 22, 2013 6:53 AM |

I have long maintained that a self-regulatory model for monitoring Wall Street does not and will not work. To think that the brokerage industry could be properly monitored by an organization that it funds in large measure strikes me as ridiculous.

I witness further evidence of this reality in a report that some might think is an indication that this self-regulator, FINRA, is getting tough on Wall Street. If this is tough, then let me puff up the pillows for you and get you a cup of warm cocoa. Let’s navigate as The Wall Street Journal writes this morning:

Under pressure from Washington to crack down on rogue stockbrokers, the Financial Industry Regulatory Authority is highlighting a fast-track program it began earlier this year to go after what it calls “high-risk brokers.”

The results: Forty-two of the most troubled brokers were targeted for “expedited investigation,” and 16 of them were thrown out of the securities industry, Finra Chairman and Chief Executive Richard Ketchum wrote in a Nov. 13 letter to Sen. Edward Markey (D., Mass.).

The high-risk brokers program was launched in February, and Mr. Ketchum wrote that it shows that Finra officials realize “the potential harm individual brokers can cause investors and the need to confront them more quickly.”

FINRA oversees over 600,000 brokers. What do readers think about the fact that FINRA designated 42 of them as worthy of an expedited investigation and that 16 of them were tossed? Is the financial industry this clean? You think?

Some outsiders said the numbers so far seem small. Philip Aidikoff, a Beverly Hills, Calif., lawyer who represents investors in claims against brokerage firms, said the total of 42 people targeted by the high-risk brokers program since February appears “incredibly” low compared with the scale of problems he believes exist in the securities industry.

And if transparency remains the great disinfectant, FINRA continues to keep the blinds closed. Ketchum . . .

. . . didn’t disclose the exact procedures used by Finra’s Office of Fraud Detection and Market Intelligence to zero in on suspicious brokers. A Finra spokeswoman said the criteria are “regulatory information that we shouldn’t disclose.”

All of which begs the question of how FINRA oversees and addresses ‘high-risk’ management within the financial industry.

Do you think high-risk brokers engaged in an array of unsavory practices are always acting on their own? Do you think there is a chance, if not a likelihood, that pressure applied by management to generate revenue — often by seriously bending if not breaking the rules — is the real driving force behind a meaningful percentage of the practices that harm investors? I have no doubt.

So Mr. Ketchum, what is FINRA doing on that front? How many high-risk managers have you found, or are these individuals too firmly embedded so as to be above the fray?

Can you get back to us on that?

Any brokers or financial planners in the crowd care to weigh in on this topic?

Navigate accordingly.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Rich

    It would be nice if you got your facts straight.

    The forty-two brokers cited are not individual brokers but broker/dealer organizations. The broker/dealers were thrown out of the business. These broker/dealers employed thousands of registered reps.

    Don’t go on a screed without the facts.

    • Larry Doyle

      Richard,

      Thanks for writing.

      What do you make of the following quote from this morning’s article?

      Some outsiders said the numbers so far seem small. Philip Aidikoff, a Beverly Hills, Calif., lawyer who represents investors in claims against brokerage firms, said the total of 42 people targeted by the high-risk brokers program since February appears “incredibly” low compared with the scale of problems he believes exist in the securities industry.

      The appropriate term in the industry is that broker connotes an individual, while broker-dealer implies a firm.

      Poor delivery on FINRAs part and the WSJ as well?

      • Larry Doyle

        Richard,

        I was bothered by the fact that I may have misconstrued the material presented in this situation so I went to look for more material. In reviewing this article from Investment News, I read the following:

        “The High Risk Broker initiative demonstrates that a concentrated effort on single brokers using expedited tactical techniques can achieve material results,” Mr. Ketchum wrote in a Nov. 13 letter to Sen. Edward Markey, D-Mass., that was released by Mr. Markey on Friday. “In 2014, we plan to expand the HRB program and create a dedicated enforcement team to prosecute such cases.”
        Finra barred 1,342 individual brokers between January 2011 and Sept. 30, Mr. Ketchum wrote.”

        I am not disputing that there were more than just 16 brokers tossed from the industry BUT (and this is a BIG BUT), under this high risk broker program I believe that the number was only 16 to date. Ketchum himself uses the term “single brokers”. I mean how else can one read that than as an indication that they are single individuals.

        In reading that entire piece from Investment News, I think there is no doubt that the reference to brokers is always to individuals not firms.

  • Jay

    B I N G O

  • RM

    GREAT PIECE.

  • PR

    The pressure by some in management can be unbearable. This is not low level management either. When trying to fulfill our fiduciary obligations, management is ALWAYS pushing proprietary products and managed accounts at my prior b/d. The big blue logo and numerous articles about the firm proves the point. I can’t begin to tell you how destructive it can be. I think regulators should focus some very serious attention on the sales practices of this firm and it’s management. When a broker can be terminated for a single minor infraction but the firm pays billions and nothing happens to management, something is clearly wrong.






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