Regarding its ongoing drama with Spitzer mini-me William Galvin, a simple misstep might have done Scottrade in—and it most likely stemmed from a zeal to do good.
Massachusetts’ Secretary of Commonwealth Galvin is forging ahead with conflict-of-interest enforcement, charging Scottrade with violating its own policies instituted “in anticipation of its obligations under the upcoming Fiduciary Rule.”
Scottrade allegedly failed to enforce its provisions, “rendering the policies meaningless,” according to a complaint filed on Feb. 15.
The allegations center on two sales contests in the second half of 2017 (the timing is important) involving retirement account clients, and “encouraged its customers to bring new assets to the firm, while failing to inform them of the conflicts arising from the sales contest.”
The kicker is that Scottrade instituted policies and procedures ahead of full fiduciary rule implementation to ensure compliance, only to then fail to reexamine said procedures in light of subsequent rule delays.
The resulting exposure was enormous, and avoidable, according to ERISA attorney Jason Roberts, founder and CEO of the Pension Resource Institute.
“Scottrade went out of its way to bake in policies to comply [with the anti-conflict procedures required under the full BICE],” Roberts explains. “But they didn’t have to until 1/1/18 and then even when it was delayed again out to 1/1/19.”
Which led to the self-inflicted wound. Galvin, of course, has no DOL authority, yet including the language in Scottrade’s procedures manual gave him all he needed.
“As a former litigator, nothing was as damaging as pointing out that a defendant failed to follow their own internal procedures,” Roberts concludes. “We continually advise our clients not to put anything in their manuals or client disclosures unless they are fully prepared for all the intended and unintended consequences of how it can be used against them.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
