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Regulatory Sanctions

Scottrade ‘Call Nights’ Cited in Complaint by Massachusetts Regulator

February 16, 2018

The securities regulator for the Commonwealth of Massachusetts filed a complaint against Scottrade, Inc., accusing the broker-dealer of practicing aggressive and improper sales practices “by running a series of sales contests involving retirement account clients.” Specifically, Secretary of the Commonwealth William Galvin charged Scottrade with knowingly violating “its own internal policies designed to ensure compliance with the United States Department of Labor (“DOL”) Fiduciary Rule by running a series of sales contests involving retirement account clients.”


The DOL issued the Fiduciary Rule on 4/6/16, expanding the “investment advice fiduciary” definition under ERISA of 1974 - which, in part, required that material conflicts of interest be disclosed to clients. Although the 2nd phase of the DOL rule implementation has been delayed to July 2019, the impartial conduct standards of the DOL Fiduciary Rule took effect on 6/9/17.


The Massachusetts Complaint further states, in relevant part:


Prior to the Fiduciary Rule, Scottrade employed a firm-wide culture characterized by aggressive sales practices and incentive-based programs. For example, between December 2015 and April 2017, Scottrade ran a series of call nights and sales contests, in part to drum up additional business in light of an upcoming merger with TD Ameritrade. In response to the Fiduciary Rule, Scottrade added identical provisions to both its Brokerage and Investment Advisor Compliance Manuals. These provisions, titled “Impartial Conduct Standards Applicable to Covered Recommendations in Retirement Accounts,” provide that:


The firm does not use or rely upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or reasonably expected to cause associates to make recommendations that are not in the best interest of Retirement Account clients or prospective Retirement Account clients.


Scottrade made these necessary changes in anticipation of its obligations under the upcoming Fiduciary Rules. However, Scottrade subsequently failed to enforce the above provisions, rendering these policies meaningless.


Despite its addition of policies related to the Fiduciary Rule, Scottrade expanded the scale and scope of the very sales practices its policies were designed to curtail. …


[Click here to access: Massachusetts Administrative Complaint.]