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Revealed: Firms Hiring Rogue Brokers

June 13, 2017

While Finra acknowledges certain financial advice firms hire a disproportionate number of brokers with disciplinary records, the industry’s self-regulator doesn’t expose these firms to public scrutiny, newswire Reuters contends. An investigation by the media outlet, meanwhile, has identified 48 Finra-member firms where at least 30% of the brokers have a Finra flag on their records.

The firms identified by Reuters oversee about 4,600 brokers in total but only cover the 12 most most serious incidents out of the 23 for which Finra requires disclosure. Overall, about 9% of brokers have at least one of the flags on their records. Reuters’ investigation, however, includes Accelerated Capital Group, where 71.4% of the firm’s 21 brokers have Finra flags, Joseph Stone Capital, where 71.2% of the 59 brokers have spotty records, and Kovack Securities, the firm with the most brokers on Reuters’ list.

At Kovack, 34.3% of its 388 brokers have a Finra flag, which president Brian Kovack attributes to a 2014 acquisition of another firm. Kovack also tells Reuters that the reason the firm still employs a high proportion of brokers with Finra disciplinary records three years after the acquisition is that the firm’s review of its brokers had to be “fair and transparent.” Meanwhile, all of the firms where more than half of the brokers have Finra flags either declined comment or didn’t respond to Reuters, the newswire says.

The “rogue” brokers’ records at these outfits include customer complaint settlements, misconduct resulting in sanctions and employment terminations, and personal financial issues such as nonpayment of debts or bankruptcies. Finra identified 90 firms last year worthy of heightened scrutiny but never released the names of the firms, nor the proportion of bad brokers at the firms, Reuters writes.

Susan Axelrod, the regulator’s executive vice president of regulatory operations, wouldn’t address why Finra doesn’t name the firms, according to Reuters, while acknowledging that the firms identified by the newswire’s investigation stand out.

“Let’s just say those are not new names to us,” Axelrod said of the firms.

Meanwhile, Robert Cook, the regulator’s CEO, said earlier this week that Finra plans to roll out additional guidance on member firms’ obligations when it comes to supervision of high-risk brokers, according to ThinkAdvisor.

By Alex Padalka
  • To read the Reuters article cited in this story, click here.
  • To read the ThinkAdvisor article cited in this story, click here.