I have a client who constantly brags about how wealthy he is. He tells me he has other accounts with other firms and that I'm being too conservative with his account. The problem? He refuses to show me his other accounts and says he's happy with those investment advisors. He doesn't want me spending my time trying to "get his other accounts" and wants me to just focus on the ones I have. While I admit I'd love to have his other accounts, I'm more concerned that I could be over-concentrating him without knowing it. Any suggestions?
— H.B., North Carolina
In my experience, the people who brag about their wealth are usually the ones with very modest resources. They only tell you they're worth millions because they think you'll treat them better, or that you'll recommend investments that they wouldn't otherwise qualify for. You're right to be concerned about possibly over-concentrating him, but I suspect he's inflating his assets. My suggestion is that you tell him you're not interested in taking an account away from someone else, but that you have a duty to not over-concentrate him in particular securities or market sectors. If he still refuses to disclose his other holdings, either send him on his way, or assume that what he's given you is all he has and adjust your recommendations accordingly.
A while back I ran some radio ads. During a recent SEC audit of my firm, the examiner noted that I hadn't obtained approval for the ads from a registered principal of the firm. However, the examiner merely said that he would leave the choice of discipline up to my firm, which had me pay a $2,000 fine. I've since left the firm (for other reasons) and they've informed me that they will report the fine on my U-5 as a "Regulatory Action." Can they do that?
— N.K., via e-mail
Question 7D of the Form U-5 requires disclosure of disciplinary actions by a governmental body other than those designated as "minor rule violations." The fact that the SEC left the discipline up to your firm would, in my opinion, mean that no governmental body took any disciplinary action against you. Even if the firm argues that the SEC did impose discipline against you by proxy (i.e., that they imposed the discipline on behalf of, or at the request of, the SEC), I would point out that FINRA Rule 9217 provides the list of violations that are appropriate for consideration as "minor rule violations." Included in the list is NASD Rule 2210 (Communications With the Public), which, references television and radio ads and requires that they be approved by a registered principal. Therefore, a violation of Rule 2210 could be considered a minor rule violation. Furthermore, FINRA Rule 9216(b) provides the procedure for imposing discipline for minor rule violations, which includes the imposition of a fine not to exceed $2,500, and/or censure a member or associated person. Consequently, if FINRA had imposed the discipline, this would have risen only to the level of a minor rule violation, which would not require disclosure under 7D.
Alan J.Foxman, is an attorney in private practice
in Boca Raton, Fla. He also works as an
independent contractor with National Compliance Services
Inc. He can be contacted at this email address.