The Department of Labor might allow for regulatory wiggle room before full implementation of its fiduciary rule; not so with state counterparts.
Massachusetts’ Secretary of Commonwealth William 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 involving retirement account clients.
“Scottrade encouraged its customers to bring new assets to the firm, while failing to inform them of the conflicts arising from the sales contest.”
The firm launched the first of the two contests, the Q3 “Win and Retain” contest on June 5, 2017. It came on the heels of predecessor sales contests, “placed an explicit emphasis on generating net new assets, including retirement assets, and offered $285,000 in cash prizes.”
Almost immediately after the Q3 sales contest ended on July 31, 2017, Scottrade launched the Q4 “Dials and Referral” contest, which was nearly identical in scope and structure, the complaint states.
The Q4 sales contest supposedly offered weekly cash prizes in the amount of $500 and $2,500.
“Both the Q3 and Q4 sales contest perversely incentivized Scottrade agents to bring in new assets from customers, including through the rollover of retirement assets.”
During both the Q3 and Q4 sales contests, Scottrade “knowingly included retirement account clients in the scope of the contests.”
While referencing the fiduciary rule throughout, the complaint concludes by asking for the following action to be taken against Scottrade:
- Finding that all the sanctions and remedies detailed herein are in the public interest and necessary for the protection of Massachusetts investors;
- Requiring respondent to permanently cease and desist from further conduct in violation of the act and the regulations in the Commonwealth;
- Requiring respondent to provide a verified accounting of all proceeds which were received as a result of the alleged wrongdoing;
- Requiring respondent to disgorge all profits and other direct or indirect remuneration received from the alleged wrongdoing;
- Imposing an administrative fine on respondent in an amount and upon such terms and conditions as the director or presiding officer may determine.
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.
