Investor Alert - Massachusetts Regulator Files Charges Against Scottrade inc.
Scottrade Inc., fresh off its merger with TD Ameritrade, has been charged by the Massachusetts Securities Division of Enforcement with violation of United States Department of Labor (“DOL”) fiduciary rules pertaining to investment accounts. The action by Massachusetts authorities was in reaction to what state regulators described as aggressive sales tactics and offering bonuses to investment advisors and brokers for meeting certain revenue goals.
The complaint cites the DOL fiduciary rule which details the circumstances in which brokers will be viewed as a fiduciary to their clients. Citing the fiduciary rule, the complaint issued by the Massachusetts regulator asserts that broker dealers must disclose material conflicts of interest to their clients. Scottrade had amended its own compliance manual to add a provision entitled “Impartial Conduct Standards Applicable to Covered Recommendations in Retirement Accounts.” This rule stated that Scottrade does not rely on “bonuses, contests, special awards, differential compensation, or other actions or incentives” that might cause brokers to make recommendations that are not in the best interest of prospective or current retirement account clients.
According to the complaint, Scottrade directly violated the fiduciary rule through aggressive sales policies implemented. These policies also violated Scottrade provisions in their own Investment Advisor Compliance Manual, making it impossible for a Scottrade financial advisor to act in the best interest of his client.
The complaint described a “firm wide culture characterized by aggressive sales practices and incentive-based programs.” Specific examples included call nights and sales contests held by Scottrade from December 2015 to April 2017 in which brokers were encouraged to “drum up additional business in light of an upcoming merger with TD Ameritrade.” In June and September 2017, the complaint asserts that Scottrade held two sales contents entitled the “the Q3 Win and Retain Sales Contest”. These offered cash prizes to brokers and investment advisors who could generate new revenue and additional business, offering up to $285,000 in cash prizes. The Massachusetts regulator added that Scottrade was fully aware that retirement accounts were included in the contests, directly violating internal policy and the DOL fiduciary rule for retirement accounts.
The experienced securities arbitration and regulatory attorneys of Lubiner Schmidt & Palumbo would be interested in talking with anyone who held a Scottrade retirement account since 2015. Contact us for a free consultation.