Report: Brokers use legal cover-up to hide consumer complaints

Study finds expungement requests approved 97% of the time

Author: Mike Holfeld, Problem Solver, mholfeld@clickorlando.com
Published On: Jan 13 2014 05:50:13 PM EST   Updated On: Jan 13 2014 11:50:07 PM EST
broker complaints

A little known option to erase or expunge consumer complaints against federally licensed brokers and financial managers is being called the investment industry's "dirty little secret."

The Public Investors Arbitration Bar Assoc. PIBA, reports a pattern of so called  “resolved settlements” between money managers and their clients that included a clause to wipe the specific complaints against them, off the books.

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PIBA spokesman Jason Doss says  the security industry's  "dirty little secret...is a major problem that must be fixed."

According to Doss, the deals include a financial settlement with a catch.

"In exchange for that money the customer has to agree not to oppose the expungement request and it basically just wipes it under the carpet,” Doss said.

Nancy Hecht, a certified financial planner in Altamonte Springs, says the practice opens the door to what amounts to legal deception.

“We’ve all seen stuff in the paper about people who are either duly licensed or held themselves out to be, ripping people off,” Hecht said.

PIBA’s consumer alert is based on a review of documents between mid- May 2009 to 2011.

The group found so called “resolved by settlements” cases that included removal of specific complaints nearly 97 percent of the time.

The same broker requested expungement of 40 separate complaints against him and according to PIBA, all but five were erased from the record.

You can check any federally licensed broker or financial planner’s background on Financial Industry Regulatory Authority's website.

The site includes professional licenses and where the financial planner has worked. Past complaints however, are not listed.

Ed Gjersten, a spokesman for the Financial Planning Association, says the legal option is there to protect brokers from “unwarranted or unfounded” complaints.

Gjersten argues that the findings are a wake-up call for investors to confront the people handling their financial future.

“I think what the study showed us is that there’s probably a lot more due diligence that the average investor has to do.” Gjersten said.

FINRA is reviewing the frequency of the expungment relief. The group’s executives have already sent notices to arbitrators reminding them that the removal of complaints from the record is only to be used in “extraordinary circumstances.”