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Regulatory Sanctions

Broker Exercised Discretion at Former Firm and Paid a Heavy Price

March 26, 2018

by Howard Haykin


It’s an unusual story - a seemingly senseless one with no happy ending. A broker placed discretionary trades in customer accounts at his former broker-dealer just one day after switching firms. Though he earned no commissions and intended (or caused) no harm to the customers, this broker violated FINRA rules - for which he paid a huge price. A little forethought and planning would have gone a long way toward avoiding these sanctions.


The registered rep agreed to a $15K fine and a 6-month suspension to settle FINRA charges that he placed trades in customer accounts with a member firm with which he was no longer associated, and failed to notify his employing firm of these discretionary accounts.


FINRA FINDINGS.    The relatively young broker had 9 years’ experience with 5 firms - the last 7 years with Voya Financial Advisors. So it would seem he was developing some stability in the profession. And perhaps with advancement on his mind, this broker joined Merrill Lynch, Pierce, Fenner & Smith on 12/1/15 – one day after leaving Voya. Having not yet moved his book of business, this broker apparently had some unfinished (or possibly continuing) business to complete.


  • On 12/2/15, his first day with Merrill, this broker placed 7 discretionary trades in 5 customer accounts at Voya. Though he was no longer associated with that firm, the broker improperly used his old log-in credentials to access the firm's trading platform and entered the trades.


  • One week later, on 12/10/15, the broker placed another trade in one of the customer's accounts at Voya Financial. Because his log-in credentials had been terminated he used another registered rep’s log-in credentials to place the trade.


FINRA cited the broker for not having notified his new firm that he had discretionary trading authority for the customer accounts at Voya Financial. And since FINRA didn't tack on a violation for exercising unauthorized discretion, we can presume that Voya Financial had permitted this broker to exercise discretionary authority in these customer accounts.


FINANCIALISH TAKE AWAYS.    What in the world was this broker thinking? Presuming that he was acting in the best interest of the customers, then a little forethought and planning were in order. 


First, before switching firms, he should have determined whether Merrill Lynch permits its broker to have discretionary authority.


If Merrill does permit discretionary authority, then …

  • Advise Merrill of his existing relationships with the Voya customers.
  • Obtain customers’ authorizations to have their accounts transferred to Merrill Lynch.
  • Advise Merrill of his intention to use his discretionary authority to enter trades in the customers’ accounts at Voya during the transfer process.
  • Call in any orders to a newly-assigned Voya broker for these customer accounts.


If Merrill does not permit discretionary authority, then … 

  • See if his Voya customers would agree to have him broker their accounts at Merrill Lynch – though without his having discretionary authority.
  • For those customers who will not move their accounts to Merrill, terminate the discretionary relationship.
  • For those customers who agree to have their accounts transferred, request Merrill’s permission to use his discretionary authority in the customers’ Voya accounts during the transfer process.
  • Call in any orders to a newly-assigned Voya broker for these customer accounts.


This case was reported in FINRA Disciplinary Actions for January 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016048640801.