Customer privacy is a huge issue in the broker recruiting process. Take a lesson from Cetera Advisor Networks.
Recently the firm was made to pay a $125k fine and was censured for getting brokers who were still at their former firms to give non-public customer information to a third-party vendor that pre-populated new account forms before they made their move, according to an acceptance, waiver and consent (“AWC”) letter submitted last week.
“Between October 2019 and July 2020, Cetera caused 26 registered representatives, whom the firm was recruiting, to take nonpublic personal customer information from the firms where the representatives were then registered and to disclose it to a third-party vendor without the other broker-dealers’ or the customers’ knowledge or consent,” according to the AWC.
Cetera Advisor Networks, an affiliate of Cetera Financial Group, accepted the sanctions without admitting or denying the findings.
The alleged disclosure of customer data violates the Securities and Exchange Commission’s Regulation S-P concerning privacy, according to FINRA. Cetera caused the other firms to violate Reg S-P, which triggered a violation of FINRA Rule 2010 requiring member firms to “observe high standards of commercial honor and just and equitable principles of trade.”
According to FINRA, Cetera delegated employees to do conference calls between the vendor and the brokers being recruited and guided them on how to transfer customer data to the vendor. Such data included phone numbers and addresses as well as nonpublic personal information such as account numbers, net worth, social security numbers and driver’s license numbers.
“Cetera failed to take any steps to verify whether the recruited representatives or their broker-dealers at the time had notified customers about the disclosure of their nonpublic personal information… Nor did Cetera take any steps to verify whether customers had been given an opportunity to opt-out of having their information disclosed,” according to FINRA.
Other broker-dealers have faced similar hits in 2021. Securities America took one over a situation involving 12 recruits of another firm; Kestra Financial Services took a hit in another involving 68 brokers.
This was a bonehead mistake
All this trouble could have been avoided with a little obvious common sense. And a good lawyer to guide Cetera. Competition begins when a broker leaves the firm. Anything happening before he or she leaves the building is predation, plain and simple. The non-solicit/non-compete laws of most all states agree on this.
If in doubt about what to do in recruiting one broker or dozens, you need proper representation. Call the Law Offices of Christopher H. Tovar, PLLC today for a consultation.
