Safety In Numbers

A New Organization Hopes to Provide Broker Advocacy

By Mark J. Astarita, Esq.


Being a stockbroker is not what it used to be. Although stories of the “early days” of being a “customer’s man” are often repeated, younger brokers can only imagine times in which their hard work and concern was rewarded not only by commission, but by the respect of their communities, customers, firms and industry.

Quite a bit has changed. Brokers are often placed in impossible positions by their customers, their firms and the securities industry itself. And in recent years, regulatory pressure has increased.

Representing brokers for all of these years, I have seen the industry’s problems first hand. Arbitration hearings are now held in the city where the customer resides, making it more expensive and time -consuming for brokers defending themselves. Punitive damage awards are now permitted by arbitrators, with no possibility of appeal. Training programs and support staff are being cut, customers sue without warning, regulators are increasing their power over brokers and basic due-process rights are being denied. While some recent regulations have been necessary and beneficial, others have been downright outrageous.

Every barrel has its bad apples, and the industry should be actively seeking to eliminate those brokers. But there are also brokers who are simply improperly trained or who have been misinformed by their firms, companies they follow and their own customers. More and more, brokers are having inappropriate products pushed on them by their firms, and are being pushed in the other direction by their customers, who sue them simply because an investment did not perform as expected. This, coupled with an extremely hostile regulatory environment and arbitrators who have the ability to ruin an entire career in a single, unexplained and unappealable award, has made many brokers’ lives a nightmare.

Cases are commonplace in which firms file false U-5s when a broker departs as a means to delay the broker’s registration at a new firm. The firm then uses the delay to try to retain the broker’s customers. Cases in which brokers are undergoing extended National Association of Securities Dealers (NASD) investigations, during which time they cannot work, are more and more frequent. Additionally, cases in which brokers are forced to defend themselves in customer arbitration without their firms’ financial assistance are swelling.

With increasing pressure from online trading and discount brokers (a concept unheard of in the industry 20 years ago), training, education and a concern for the well-being of the stockbroker has fallen by the wayside. With new investment products being created faster and faster, additional pressure to heighten productivity and an increasing regulatory web, honest and hard-working brokers find themselves in predicaments that their older brethren would never have dreamed possible.

Brokers are being abused by their firms, their customers and the regulators and often lament the increasing unfairness that seems to pervade the business. Increasingly, they are asking why nothing is being done and why no one is addressing the problems.

Sweeping changes need to be made to arbitration and regulation. The regulatory abuses of individuals must be addressed, and new, affordable methods of education are needed. Typically, such changes are advocated by a trade organization. However, brokers do not have such an organization working for them. The NASD is anything but a “member organization”; it is a regulator, an arm of the government that places the interests of the broker last. The Securities Industry Association is an effective advocate, but the industry is its main concern, not individual brokers.

There have been attempts in the past to form a brokers’ trade organization. However, to date, all efforts have failed due to broker apathy. Some commentators have observed that brokers are entrepreneurial and often put their own interests first, building their own business instead of assisting other brokers. Brokers who have not faced unreasonable firm demands, had customers stolen or been sued are not concerned about those problems — until it happens to them. By then, attempts to change the situation are far too late.

However, with the stiffening regulatory climate, the demand to increase revenue and increased pressure on brokers, the time might be right. In fact, a broker in Minnesota is attempting to create such an organization. T. Sheridan O’Keefe is the president of the National Association of Investment Professionals (NAIP). The NAIP is offering insurance programs, referral services and educational information, and is attempting to promote ethical dealings with the public, customers and employers through education, information and public awareness programs.

O’Keefe hopes that his organization will be able to address some of the problems facing brokers. The NAIP is offering continuing education programs to offset the lack of such programs at the brokerage firms and is promoting a Code of Ethics for brokers that it hopes will become an industry standard. The association’s ambitions include lobbying efforts to make industrywide changes and an extension of the referral service to include professionals such as business consultants, attorneys, accountants and others who can help them build their businesses.

Broker apathy will certainly be a stumbling block for the NAIP. However, brokers and their firms must realize that if someone does not start speaking up for brokers’ rights and interests, the situation will worsen and the abuse will continue. Ultimately, hard-working and diligent brokers will leave or be driven from the industry, and the industry and the investing public will have precious few choices for honest and professional investment advice.


Copyright 2010. VGIS Communications LLC. All Rights Reserved. VGIS Communications, LLC – 41 Watchung Plaza, Suite 249, Montclair, New Jersey 07042 – 973-559-5566. Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial adviser before acting upon the information contained in this article. For additional information, contact Mark J. Astarita, Esq., a partner in the law firm of Beam & Astarita, LLC, who represents clients in a wide variety of finance related matters. Mr. Astarita can be contacted by email at astarita@beamlaw.com.


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Mark J. Astarita, Esq. represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at mja@sallahlaw.com or by phone at 212-509-6544.

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