In court papers filed February 23, 2018, the Office of the Secretary of the Commonwealth alleged Scottrade violated Massachusetts’ securities laws by failing to comply with the impartial conduct standards of the Labor Department’s fiduciary rule.
According to the complaint, the discount broker-dealer knowingly violated the fiduciary rule by running sales contests targeting retail investors’ assets in qualified retirement accounts. The contests also violated the internal compliance policies the company put in place after the impartial conduct standard went into affect in June of 2017, the complaint says.
Broker-dealer Scottrade has been charged with violating the impartial conduct standards of the DOL fiduciary rule. Under the fiduciary rule’s impartial conduct standards, any recommendation to buy a security with assets in IRAs or 401(k) plans must be made in investors’ best interests.
Scottrade ran two sales contests; one launched days before implementation of the impartial conduct standards, and one launched in September of 2017. Those contests, which were common in what the claim says was Scottrade’s “aggressive sales practices” prior to the implementation of the impartial conduct standards, incentivized brokers to bring in new assets from customers, including through rollovers from qualified retirement accounts.
In the first contest, Scottrade offered $285,000 in cash prizes to brokers that satisfied high cold-calling penetration benchmarks. In the second, brokers were awarded weekly cash prizes of $500 and $2,500 for recommending investors move to the firm’s advisory program.
Under the fiduciary standard established by the impartial conduct standards, any compensation arrangement that creates a potential conflict of interest must be disclosed to investors. Massachusetts’ complaint says Scottrade failed to inform clients of the conflicts arising from the incentives in the sales contests.