(FeedPublish) Did you know that brokerage firms prohibit their advisors from being appointed beneficiaries to a customer’s estate, or to receive large gifts from customers, or even accept a loan from a customer?
The Financial Industry Regulatory Authority (FINRA), the regulatory watchdog for registered broker-dealers, has specific rules regarding registered representatives holding positions of trust. These rules were put in place to protect investors and provide consistency across FINRA registered firms.
FINRA Rule 3241: Can I name my broker as my Beneficiary?
According to FINRA Rule 3241, a registered representative (financial advisor) may not be named a beneficiary of a customer’s estate or receiving a gift from a customer’s estate unless the representative receives written approval from its member firm, and the representative doesn’t receive any financial compensation other than the fees and charges that are reasonable and customary.
It apparently is not a violation of the rule if a registered person is named as a beneficiary or to a position of trust without his or her knowledge, as long as they act consistently with the rule upon learning of this status.
FINRA leaves the specifics of the notice to the individual firms, but they do require some form of written notice. Upon receiving a written notice, a firm must evaluate if it will compromise the registered person’s responsibilities to the customer; and review and approve or disapprove the request.
The rule does not apply where the customer is a member of the registered person’s immediate family, according to FINRA.
FINRA from time to time has taken regulatory action against registered reps who have broken these rules. Most firms have rules against it.
In April 2020, the regulator barred former J.P. Morgan Chase rep, Steven Jun Lu, for allegedly convincing an elderly woman to give him power of attorney and name him co-trustee of her assets, making him the beneficiary of 75% of her estate.
Steven Jun Lu purportedly lied about his relationship with the woman in an alleged attempt to open accounts to gain further control of her assets but was thwarted by suspicious bank employees, according to FINRA.
The elderly woman was apparently diagnosed with Alzheimer’s disease 6 months later, according to FINRA’s findings.
FINRA Rule 3240 Can my Broker Borrow Money from me?
FINRA does have a specific rule (FINRA Rule 3240) against registered advisors borrowing from or lending to customers unless a long list of conditions is met, but most brokerage firms don’t allow it anyway.
According to Dax White, managing partner of The White Law Group, “Most brokerage firms don’t allow representatives to take loans or gifts from customers, knowing it would create problems. They just don’t allow it across the board.”
FINRA Bars Dustin Shaffer after Allegations of Borrowing Money from Elderly Client
In December 2020, FINRA barred Dustin Shafer (CRD # 4198962) in connection with an investigation into whether Shafer borrowed money from a customer. FINRA staff requested that Shafer appears for on-the-record testimony and he apparently refused the request in violation of FINRA rules.
According to Shafer’s broker report, on December 22, 2020, by the State of Illinois Securities Department sanctioned Shafer alleging that he “Borrowed over $55,000 from one of his elderly clients, an Illinois resident.”
The foregoing information, which is all publicly available, is being provided by The White Law Group. For a free consultation with a securities attorney, please call (888) 637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois. For more information, please visit our website, www.whitesecuritieslaw.com.