Should a Complaint Stay on a Financial Advisor’s Record? Perhaps

complaintsEven the most ethical financial advisor can have complaints on his compliance record. However, the complaints may be frivolous because the advisor did nothing wrong. An investor lost money and wants to be reimbursed for the loss. The financial services industry says the majority of all complaints are without merit and are frivolous. Frivolous complaints should be expunged from the advisor’s record.

Complaints that require the advisor to reimburse clients for losses are an entirely different matter. These events should never be expunged from the advisor’s records. Company and regulatory agency complaints should also be part of the permanent record.  See Suzanne Barlyn’s article, Two U.S. senators press Wall Street watchdog on process for erasing broker records.  

There is a murky area. A broker/dealer approves a product for sale to the financial advisor’s clients. The product turns out to be bad. The broker/dealer failed to conduct adequate due diligence. The advisor sells the product to his clients who suffered losses. Investors file a complaint naming the broker/dealer and the advisor. Is the advisor responsible for his firm’s failure to conduct proper due diligence before approving the product for sale to the advisor’s clients?  In this case all of the reimbursement is usually paid by the company and not the advisor. Should this complaint stay on the advisor’s record? Perhaps there is a disclosure for the event, but it should not damage the advisor’s reputation for the ethical treatment of his clients.

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