Financial advisers should think twice when considering whether an expense, even a small-ticket item, really belongs on the corporate credit card.
One former
Fidelity Investments adviser, for example, faces the possibility of fines and being barred from the industry for racking up a share of personal expenses including a “meat snack stick” that he allegedly mislabeled as a general office supply, according to a complaint filed this month by the
Financial Industry Regulatory Authority Inc.'s Department of Enforcement.
Check out these 8 expense account blunders — from the wacky to the mundane
In a case last year, Finra barred another Fidelity adviser, David Detwiler, for misreporting $785 in travel expenses.
Even overstepping the boundaries on an expense account slightly can sink not only a job but also a career. An adviser can not only be fired, as was the case with the Fidelity adviser, but Financial Industry Regulatory Authority Inc. often steps in after the fact to bar the adviser from the industry — and sometimes levy a fine.
Although Finra doesn't report data on how often these infractions occur, the regulator has grown stricter in the past few years and now treats cases of falsified expense reports on the same level as defrauding a client, according to Bruce Bettigole, a partner at the law firm of Sutherland Asbill & Brennan.
“Finra has been following a policy of seeking bars no matter what the circumstances may have been for anything that could technically be considered a conversion of funds,” he said. “It doesn't matter if the conversion of funds is of brokerage funds or the customer.”
That leads to a number of problems in what is sometimes a murky area for advisers, who are often provided a budget by their firm for marketing and advertising expenses.
It is always important that advisers are clear about the terms of what exactly is considered a marketing expense in such cases, said Robert Rosen of Rosen & Associates PC.
“Then you have to define what is marketing,” he said. “It's worse if the broker puts in false reports or just does something completely outside of the agreement, but there is a lot of grey area.”
In most cases, the size of the infraction doesn't matter, nor does whether the broker has a clean record, Mr. Bettigole said.
He is representing a client, Denise Olson, formerly of Wachovia/
Wells Fargo Advisors, who was barred for allegedly misreporting two iPods.
The adviser had a clean compliance record and was remorseful over what Mr. Bettigole called a “one-time” event but she still was barred from the industry, Mr. Bettigole said.
The decision is on appeal with Finra's national adjudicatory council, which is the first step of appeals for the regulator's disciplinary decisions.
“Not that it makes the purchase all right, but if you consider what an honest person she was and that this was a one-time event, she was terribly sorry,” Mr. Bettigole said. “After this, she wouldn't even jaywalk again.”
None of the firms in these examples are named in the complaints.
