Regulators consistently crack the knuckles of broker-dealers for any number of reasons. The Securities and Exchange Commission's recent push to discipline firms for recommending and selling high-fee mutual funds comes to mind as an example of a sustained effort by the securities cops.
Financial advisors should heed this noisemaking. Neglecting to do so could lead to employment problems for individuals in the retail securities industry. It's often financial advisors or firm executives who don't follow industry rules to the letter who may be discharged or terminated — meaning fired.
Two recent examples of advisors who used to work at Edward Jones, one a 21-year industry veteran and the other a three-year newbie, should serve as a reminder for advisors.
The financial advice industry is in the middle of a fundamental shift, moving from being a commission-based industry to one that uses an annual fee revenue model and is awash in all sorts of nifty new technologies. And the regulators are not going away.
This all means that financial advisors, now more than ever, should be paying as much attention as they can to the quirks, proclivities and interests of the staffs at the SEC and its junior partner, the Financial Industry Regulatory Authority Inc.
Put simply, what the regulators are obsessed with can spell trouble — not just for firms, but for individual advisors as well.
The SEC's current investigation of broker-dealers' efforts to keep tabs on employees and financial advisors' use of electronic communications or messaging apps that are not approved is clearly hitting a nerve.
Last month, LPL Financial said the SEC had made inquiries into whether the broker-dealer was meeting industry standards related to retaining with electronic communications on personal devices unapproved by the giant brokerage.
Other firms have made similar announcements. In September, U.S. regulators, including the SEC, reached settlements with more than a dozen banks in a sprawling probe into global financial firms' failure to monitor employees' communications on unauthorized messaging apps, bringing total penalties in the matter to more than $2 billion.
Which brings us back to the two Edward Jones financial advisors mentioned above, the veteran Erick Krosky, who worked for six years at Edward Jones until last month in Scottsdale, Arizona, and the newcomer Joseph Menotti, who was registered with the firm in suburban Detroit from 2019 to 2022, according to their respective BrokerCheck reports.
It appears Krosky's loss of his job was directly related to the industry's current spotlight on financial advisors using applications and functions on their phones that their firms don't know about. He was "discharged" by Edward Jones over concerns that he "did not adhere to firm policies relating to communications with clients, including text messaging," according to his BrokerCheck profile.
Krosky also "admitted to deleting text messages prior to an unannounced branch audit," according to BrokerCheck. The circumstances are certainly not clear. Krosky didn't respond to a message Tuesday at his new firm, the Ameriflex Group, to comment.
Meanwhile, on Monday Menotti was suspended for nine months from the securities industry and fined $10,000 by Finra for making "reckless misrepresentations" to local Michigan authorities while seeking unemployment benefits in the spring of 2020, at the height of the Covid-19 pandemic, while he was employed by Edward Jones, according to a Finra settlement. He agreed to the settlement without admitting to or denying Finra's findings in the matter.
He should have known better. At the time, InvestmentNews reported that compliance experts were wondering whether federal loans meant to sustain small businesses during the pandemic would trigger a disclosure requirement for any RIAs that got one. Those who were watching the regulators were already questioning how any federal benefits or payments linked to the pandemic would affect financial advisors.
Broker-dealers and registered investment advisors are desperate to hang onto their current roster of financial advisors. Recruiting bonuses at many firms have increased recently, and some are offering their biggest deals ever. At the same time, those firms face mounting pressure from Finra and the SEC not to hire advisors who have marks on their employment histories.
So financial advisors, please pay attention to the concerns and worries of the regulators. When they squeak, don't stomp in anger. Listen, and don't open that app.
In an era of AI euphoria and market FOMO, getting back to basics with fixed income may be the most contrarian and most important move advisors can make.
Voya Financial adds private equity, credit and real estate options to its AMA program, building on support for looser federal investment rules in retirement accounts.
Shannon Reid, president of Osaic and the network’s number two executive, has plenty of challenges, industry executives said.
Auditors flagged the commingling. The COO allegedly knew. Investors kept getting the pitch
The advisors on the move include two brothers leading a family practice in Connecticut, and a husband-and-wife tandem working with business owners in the West Coast.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
