Brokers who change phone numbers and email addresses in an attempt to retain clients before leaving their firms is a regular problem that has sparked recent disciplinary action, according to the Financial Industry Regulatory Authority Inc.
This month alone, two Finra cases involved employees changing customer records before leaving their firms. Such a method has been used for years, and yet, continues to happen as registered representatives and their employers race to maintain, or win over, clients.
"We regularly bring disciplinary actions based on the alteration of documents and the removal of [personal confidential information] in connection with a broker's transition from one firm to another," Brad Bennett, Finra's executive vice president and head of enforcement, said in an email.
According to a June 17 Finra document, Kyle A. Gonzales, an unregistered assistant at Wells Fargo Advisors in 2011, was assigned to a team of brokers who prior to his hire decided to leave for another broker-dealer. After being directed to do so by a team member, Mr. Gonzales changed about 50 customer records to add inaccurate information. He was suspended for one month and fined $5,000.
A similar June 9 letter stated Salvatore Bonetti, a former Morgan Stanley general securities representative, altered company records of 35 customers with a total of 63 securities accounts last year before moving on to another broker-dealer. Mr. Bonetti was suspended for 30 business days and fined $5,000.
Changing client records is a surefire way to give brokers a leg up in the highly competitive environment following their resignation. Immediately after an adviser notifies his company that he is
moving on, that firm will begin contacting existing clients in an effort to retain them. By transposing phone numbers and email addresses, departing employees get a little more time to make calls to their clients.
Both representatives in these cases violated Finra Rule 2010, which requires all advisers conduct business with high standards. Mr. Bonetti also violated Finra Rule 4511(a), which requires members to make and keep accurate books and records.
"In today's age of technology, really anything you do leaves a forensic footprint," said Sharron Ash, chief litigation counsel at Hamburger Law Firm. "I cannot believe there are still unsophisticated transitioning brokers who believe they will get away with this."
It doesn't have to be that way, though, said Bill Singer, an attorney who specializes in the financial services industry. Brokers have used this trick for years and will continue to do so until they are not in such a heated battle to keep their clients, he said.
Finra suspended David Michael Mitchell for 30 business days and fined him $5,000 for altering at least nine of his customer accounts, including 17 phone numbers and 13 email addresses, according to an Finra document from earlier this year. He had made the changes in 2013 before resigning at Morgan Stanley.
"Mitchell's actions were driven by a desire to delay competing Morgan Stanley registered persons from contacting his customers, with the hope of persuading these customers to move their accounts to Respondent's new FINRA regulated broker-dealer employer," the document states.
According to another document from April, former Northwestern Mutual Investment Services representative Ryan Alexander Logan remotely accessed the firm's computer system in 2014 and changed the information for 41 customers of the firm or its insurance affiliate two days before terminating his registration with the firm.
"The only reason they're engaging in misconduct is because brokerage firms do everything they can to retain accounts when the broker leaves," Mr. Singer said. "It is better to allow men and women to leave and to continue to communicate with those accounts than it is to basically threaten them with restraining orders and fines."
Wells Fargo and Morgan Stanley declined to comment for this story. Attorneys of the representatives named could not be reached.
The
Protocol for Broker Recruiting, a document Merrill Lynch, UBS PaineWebber and Smith Barney created in 2004, seeks to smooth the transitioning process for brokers. It can
potentially save brokers from temporary restraining orders and lawsuits, but requires that these registered representatives not contact clients prior to resignation or take more than their clients' name, address, phone number and account title when leaving.
