Securities Law Blog

FINRA has told industry members that it is serious about cracking down on brokers who falsely claim to have expertise in certain investment areas. Recently, the SRO put out a rule proposal limiting the tools that some brokers use to promote, and sometimes exaggerate, their expertise in certain areas. Many brokers host seminars and other sessions and show off books or magazine articles that they claim to have written to demonstrate their expertise in a given investment area. The problem often is that the broker did not write them. It is a ploy to gain the trust and confidence of investors, especially seniors. So FINRA has put forth a rule proposal that states that brokers can no longer fabricate such publications and that member firms must document their brokers’ expertise. “Registered representatives may not suggest (or encourage others to suggest) that they authored investment-related books, articles or similar publications if they did not write them,” FINRA said in its rule. The regulator discovered this issue as it was conducting its recent sweep of brokers who market to seniors. As part of their “free lunch” seminars, brokers were giving away such publications to the participants as a way to demonstrate their knowledge about investing. FINRA uncovered different types of publications brokers used, including books, magazine and online articles the broker had altered to appear as if he wrote them. Other brokers showed interview-style broadcasts, where it looked as if a neutral party was questioning him about investments. But the entire presentation was a just a sales ploy. The problem is not limited to just the brokers who deal with senior investors. The regulator also found firms that put together the documents specifically for brokers to mislead investors. “Some third-party vendors market ghostwritten books on senior investing to registered representatives as tools to establish credibility,” FINRA stated. “Implying that one is the author of a book on senior investing, and therefore an expert, could violate a number of rules ... these concerns would apply to any ghostwritten publication.” FINRA also decided to remind firms in its rule proposal specifically about marketing to seniors and. It stated that providing reps with certain job titles to make them appear to be more of an expert than they are with regards to senior investors is also problematic. “Firms that allow the use of any title or designation that conveys an expertise in senior investments or retirement planning where such expertise does not exist may violate NASD Rules 2110 and 2210, Incorporated NYSE Rule 472 and, possibly, the antifraud provisions of the federal securities laws,” FINRA said. “This concern applies to the misuse of any title or designation in a manner that exaggerates the representative’s expertise or implies expertise where none exists. In addition, some states prohibit or restrict the use of certain senior designations.”

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.