April 17, 2009
Dear Sirs:
We have had the pleasure and privilege of representing investors in NASD and FINRA sponsored securities arbitration matters for the past 17 years. We dedicate ourselves to assisting investors to recover losses as a result of broker misconduct. We take our work seriously and don't undertake representation unless we are convinced that a genuine wrong has been committed.
We write on behalf of our clients, the customers and victims of the brokerage industry, in support of the proposed rule relating to changes in Forms U-4 and U-5. This proposal would close a significant loophole in reporting requirements that has worked to the detriment of retail investors by perpetuating a practice of ignoring complaints lodged against stockbrokers for their misconduct.
Put plainly, a client or potential client should have the right to know everything about his or her broker's professional background, including complaints and arbitrations in which he or she was in some way directly involved. It is shocking to see by the 1,000 plus responses opposing this proposed rule that in this day and age, the securities industry is still trying to cover up and protect its bad actors from disclosing their checkered pasts.
For an industry which makes its profits convincing people that they can not invest on their own and need a broker to guide them, it is only fair that potential clients have the complete background and history of a broker. Taken from a broad perspective, brokers hold themselves out as individuals with superior knowledge and skill seeking to sell their services. Clients come to brokers because they seek high quality advice and guidance about how to invest their money. Clients are willing to pay large commissions and fees for such services as they put a high value on such expert advice especially when working with their life savings.
Under the current reporting requirements, a potential client still has no way of knowing whether he or she is hiring a quality broker or a wolf in sheep's clothing. An existing client has no way of knowing whether his broker is involved in wrongdoing with other clients. The Brokercheck and CRD reports with their many loopholes and reporting restrictions make it impossible for anyone to say the reports fairly disclose a broker's history.
Every complaint, alleged sales practice violation, and related arbitration claim where the broker is not named but was involved should appear on the broker's Form U-4 and U-5. This gives the clearest of pictures to potential clients regarding the person they are about to hire and entrust their life's savings.
Why are brokers and broker dealers so opposed to this disclosure requirement? The Industry argument is that there is no fairness in requiring complete disclosure. This is a smokescreen. The U-4 and U-5s give broker the opportunity to present their side of the story for every complaint and allegation. By listing both the complaint and broker's response, it gives a potential and/or existing client the opportunity to ask questions of a broker as well as giving the broker an opportunity to explain what happened. Ultimately, such frank conversations will build trust between a client and broker. In some instances the improved disclosure will protect clients from some of the predators in the industry. How is that objectionable?
Complete disclosure of a broker's professional history gives clients and potential clients all the information they need to decide whether to retain a given broker's services. Viewed in the best light, the securities industry's opposition to this proposal is a concerted effort to avoid having difficult conversations about a broker's background. A more jaundiced view of the industry's opposition suggests things more sinister about how some brokers view their clients.
Rather than let the securities industry continue to hide the ball, please give clients the information they need to make an informed decision before they give their life savings to a broker with a shady past.
Very Truly Yours,
Jonathan W. Evans and Michael S. Edmiston
Law Offices of Jonathan W. Evans Associates