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.
A Nationwide survey finds 47% of GLP-1 users have never discussed the drugs’ financial impact with an advisor, even as many dip into savings.
The hundreds of millions of dollars from a sale of Inspired Healthcare properties does not mean an immediate windfall for investors.
Its SEC filings said one thing - a congressional probe said another.
Sham agreements allegedly padded revenue by 345%.
"Most pre-retirees are uncomfortable making key retirement income decisions without an advisor's help," said Chris Bailey of Cerulli.
Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.
As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor
