Merrill hit for $880K arbitration award

Broker put client in her late 80s in 100% stock portfolio

Jul 8, 2011 @ 3:23 pm

By Dan Jamieson

Clients of a prominent Bank of America Merrill Lynch have won an $880,000 arbitration award against the firm.

Phil Scott of the firm's Bellevue, Wash., office, was this year ranked No. 30 on the Barron's list of top advisers, with $1.8 billion under management. He ranks No. 1 on the list for the state of Washington.

The arbitration award, decided June 22, was recently made available by Finra.

The clients, Harriet Baker, her son John Baker and his wife Natalie Baker, all of New York state, were 100% invested in stocks through the financial crisis, said Brian Neville, a partner at Lax & Neville LLP, who represented the Bakers. That heavy allocation in stocks was not suitable for them, he said.

Harriett Baker was in her late 80s when she started doing business with Mr. Scott in 2005, added Barry Lax, a founding partner at Lax & Neville. Ms. Baker died the day the award was issued, her attorneys said.

Mr. Scott runs more than $1 billion of client money in a dividend growth strategy, called the Phil Scott Income Portfolio, Mr. Neville said.

“Everyone has the same position — 100% equities. That's what our clients had,” he said.

The Bakers “sold at or near bottom” of the market drop, Mr. Neville acknowledged, despite Mr. Scott's recommendation to remain invested in a portfolio that subsequently performed well.

The award was about half of the $1.7 million in compensatory damages the Bakers demanded.

“It shows some shared responsibility,” Mr. Neville said.

The panel of Financial Industry Regulatory Authority Inc. arbitrators denied the Bakers' request for punitive damages.

“We disagree with the arbitration panel's decision,” said Merrill spokesman Bill Halldin.

“This account was handled properly during a very difficult period in the market when there was extreme volatility,” he said.

Merrill is considering asking a court to review the decision, Mr. Halldin added.

Aside from the arbitration award from last month, Mr. Scott has three other pending arbitrations, according to disclosures he made on his Finra BrokerCheck report.

One case was filed in April of this year, and two others were filed last summer.

The customers allege misrepresentations and unsuitable stock investments from 2007 through 2009, according to the report.

In addition, Mr. Scott's disciplinary record shows two other client complaints from 2001 and 2008 that Merrill claimed were without merit. No further action was taken by the customers in these cases.

“I don't think [Mr. Scott is] a bad broker,” Mr. Neville said. “He's just one of these guys who's a bit too dogmatic. He really believes dividend growth is the way to go for everyone, no matter who you are.”

Merrill's Mr. Halldin said the firm disputes the other claims and is fighting them.

He declined further comment.

Earlier this year, Barron's reported that Mr. Scott evaluates clients' lifestyles, jobs and personal experiences in order to gauge risk, and that in many cases he recommends stocks with growing dividends.


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