If your broker ever sends you a letter saying he or she is leaving for another firm and would like you transfer your accounts, don’t just acquiesce. This is a big red flag and you need to investigate further.
Reasons Brokers Move
Brokers move to new firms for many reasons, most of which involve a desire to make more money. Like other salesmen, brokers might be motivated by a better compensation deal, stronger support, or a more desirable slate of products to sell. There is nothing wrong with a broker looking for better, more satisfying employment.
But brokers also move when they’re in trouble. Sometimes, a broker is terminated due to violation of internal rules or in response to customer complaints. Moreover, brokerage firms sometimes opt to allow a broker to “voluntarily resign” rather than be fired. Both the firm and the broker will notify you that the broker has departed, and both will solicit your continued business, but neither will tell you that the broker left under duress or fled in the wake of an investigation.
Don’t Follow a Bad Broker
We currently have a number of cases against a major brokerage firm that allowed a broker to leave and solicited his customers’ business without mentioning that the broker was under investigation and had an almost unimaginable 60 customer complaints on his record. Our clients followed this broker to his new firm, where he talked them into investing in a Ponzi scheme. Had the first firm notified its customers that the broker was leaving with a tainted record, or simply advised his customers to check that record, none of these clients would have continued to do business with him.
If your broker let’s you know that he or she is moving to a new firm, the first thing you should do is go to http://brokercheck.finra.org and check the broker’s recent record. (In fact, you should do that before retaining any new broker and should check periodically for updates once you are working with a broker.) If you want to be even more cautious, contact your broker or your broker’s former branch manager and ask if the broker is the subject of any pending complaints or investigations that have not yet appeared on the broker’s online record with BrokerCheck.
Do your due diligence. If your broker has a clean record and you want to continue the relationship, by all means do so. But don’t blindly follow a bad broker to a new firm.
If you have questions about whether your broker was involved in deceptive practices or misconduct contact our attorneys today.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.