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Investment Industry Needs More Educational Requirements – The Miami Herald

My Corporations professor in law school once said, “Financial advisors are nothing more than used car salesmen with more expensive suits.”  Although her words may have been somewhat harsh, her comment was prescient in one particular regard — the subject of education.

Whether one sells used cars or investments, the educational prerequisites for those who sell used cars and investments are identical – there are none.  Perhaps there is good reason in the case of the car salesperson, but is the same true with respect to one’s advisor?  Do investors really care whether the person with whom they are entrusting their life savings ever graduated from high school or college?  Of course they care.


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Negligent Referrals to Rogue Stockbrokers – New York Law Journal

Can an attorney be liable for the negligent referral of a client to a “rogue stockbroker”, or in the Thanksgiving spirit, a turkey broker?[1]  If an attorney chooses to refer a client to a stockbroker[2], what are the best practices prior to making the referral?[3]  Given the absence of New York case law addressing an attorney’s liability for the negligent referral to a “rogue stockbroker”[4], best practices dictate that at a minimum, an attorney should exercise reasonable care in investigating the stockbroker’s background.  The attorney must also be extraordinarily careful regarding the nature of the referral to the stockbroker.  Initially, it may be best to determine if the person one is referring to is a stockbroker and/or an investment advisor.  Generally, stockbrokers charge commissions per transaction, whereas investment advisors charge fees based on percentages of assets under management.  Some individuals are both stockbrokers and investment advisors.


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[1] See De La Bere v. Pearson, Limited, 1 KB 280 (1907).

[2] Under New York law, a stockbroker, or someone holding a Series 7 FINRA license, is referred to as a “salesman.”  See NY CLS Gen. Bus. §359-e(2012).  FINRA refers to the same Series 7 licensed individual as a “representative”.  See FINRA Rule 1031(b).  For statute of limitations purposes, stockbrokers and financial advisors are not “professionals”.  Ironshore Insurance Ltd. v. Western Asset Management Company, 2012 U.S. Dist. LEXIS 76818 (S.D.N.Y. May 30, 2012).

[3] This article does not address an attorney’s best practices when referring to investment advisors, certified financial planners, or trust officers, unless those individuals also maintain Series 7 licenses.  These entities are distinct and warrant different considerations.

[4] The phrase “rogue stockbroker” is not defined.  However, in a 1996 speech, Mary L. Schapiro, the current Chairperson of the SEC, stated, “we are focusing on innovative ways to deal with the problem of rogue brokers, heightened supervision of these brokers, and inadequate supervision of all brokers by firms.”

Securities Law Update – August 2009

Items discussed in this newsletter:

  • Trust Not Required to Arbitrate Against Merrill Lynch
  • AIG Name Change
  • Auction Rate Securities Class Action
  • Selling Away Cases – Insurer’s Duty to Defend
  • Punitive Damages Unavailable as a Matter of Law for a Pension Plan’s ERISA §409 Claims
  • Punitive Damages Unavailable as a Matter of Law for a Pension Plan’s ERISA §409 Claims

The Polygraph Examination – A Valuable Arbitration Tool – The Florida Bar Journal

Securities Arbitration – once a concept foreign to most attorneys, is now a reality for many individuals whose retirement nest eggs have been decimated within the past year. For better or worse, most individual and institutional investors who do business with firms that are members of the Financial Industry Regulatory Authority (hereafter “FINRA”), are required to resolve disputes through a FINRA administered arbitration process. For most Nebraska residents, this means that their dispute will be resolved through an arbitration proceeding that will occur in Omaha. Residents of western Nebraska may be required to travel to Cheyenne,Wyoming for their hearings.

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