Guest Post: Forced Retirement for Stockbrokers

I did a post at Registered Rep the other day about how it’s basically impossible to get hired as a broker once you’ve been fired, especially if you’ve been fired with cause. (Data Dive: Where Brokers Get a Second Chance).

We looked at the fact that the largest firms have terminated brokers making up less than .5% of their workforce, data from my friends at Brightscope.  I received an amazing array of feedback from brokers, principles, compliance officers etc. 

But this take on my story, from attorney Curtis Carlson, was probably the most insightful.  So much so that I asked him if I could post it.  Enjoy! – Josh

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1.  It’s FINRA’s fault!  The reason so few are hired after being terminated is because of the Sweep Report issued in about 1997 that was closely followed by Notice to Members 97-19.  This Notice basically said to the firms, “If you hire a guy who has been terminated by another firm, you better supervise him closely (read: heightened supervision) or we will bang you if he or she screws up again.”  The Notice states:

As stated in the Sweep Report, firms should recognize that if a registered representative with such a history engages in further sales practice violations, securities regulators will closely evaluate whether the firm itself should be subject to disciplinary action for a failure to supervise the registered representative, beginning with the decision-making process that led to the individual being hired.

So, most firms say, “why bother.”  Why bother taking on the additional exposure.  Why bother putting ourselves at risk.  The only time a firm is willing to take on this risk is where the individual is a huge producer.  Otherwise, the brokers are screwed if they get fired.  The only chance of getting re-employed is with small, unknown firms.  This leads me to point 2.

2.  They can never climb back.  I have represented a large number of brokers who were terminated.  Except in two isolated instances, none of them have ever been able to rebuild their books.  Even if they win money in arbitration, it does not even come close to compensating them for being wrongfully terminated.  The reasons are multifaceted.

First, most individuals who are terminated are devastated emotionally and find it impossible to get their heads back into the game.  They all trusted their firms, they all believed their firms would do the right thing by them, and when the problems arose the firms cut them loose without any hesitation or a second thought.  The firms are ruthless and heartless.

Second, the U-5 termination disclosure requires the state regulators and sometimes FINRA to hold up the transfer of the broker’s license so that an investigation can be conducted. The firm obtains the functional equivalent of an injunction because the broker cannot call any clients while the investigation is ongoing.  In the meantime, the firm is calling the individual’s clients, telling the clients that the broker joined the circus or some other nonsense, and telling the clients that the former broker put them into improper stocks and bonds, all for the purpose of turning the clients against the broker.

Third, when the broker is finally able to get re-registered and start calling his former clients, he or she is with some small firm the clients have never heard of, and the clients are not interested in transferring their accounts because the clients believe the broker did something awful to get fired and by then the clients have developed a new relationship with a broker at the old firm to which their account was assigned and who has been discounting commissions and fees for the clients so they would not transfer their assets out.

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Josh here – I agree with all of that and have seen most of it go on firsthand.  In some cases the blackballing is deserved, in many cases it is not.  If you’d like to contact Curtis, visit his site below:

Curtis Carlson
Carlson & Lewittes, P.A.
www.carlson-law.net

Read Also:

Data Dive: Where Brokers Get a Second Chance (Registered Rep)