Defending Against a Customer Complaint
From the Desk of Jim Eccleston at Eccleston Law LLC:
Customer complaints and arbitration claims never are good news for financial advisors. But too often advisors go “from the frying pan to the fire” by agreeing to be represented by the legal counsel that their firm recommends or refers. Advisors are enticed by the word “free”, and they are lulled into a (false) sense of comfort and security knowing their lawyer is liked by his/her financial services firm, sounds smart and polite, is experienced, and reassuring that all will turn out okay.
But the reality is different. Let’s explore four areas that should cause advisors to run (not walk) from their firm-recommended, “free” legal counsel: (1) legal counsel’s inevitable role as the “spy among us”; (2) legal counsel’s inadequate retention disclosures; (3) legal counsel’s half-baked defenses and discovery efforts; and (4) legal counsel’s pressured settlement, limited trial/arbitration representation and expungement request, and the reputation-damaging amended Form U-4. Once those three areas are carefully considered, it becomes apparent that “free” legal counsel offered by the firm can often come at great cost to a financial advisor, sometimes even imperiling his or her life-long career.
First, an advisor’s firm is paying for legal counsel so that the firm can control that counsel, direct the strategy and defense, and be kept fully apprised of all legal and factual developments. Firm-paid for legal counsel thus plays the role of the “spy among us” or the “fly on the wall” because everything an advisor reveals to his/her purportedly trusted lawyer “can and will be used against you.” Firm-provided counsel inevitably learns all of the good, bad and ugly facts of an advisor’s case. Regrettably, that “information pipeline” flows back to the advisor’s firm, its legal department and branch management. And make no mistake: firms will not hesitate to use that information to throw the advisor “under the bus” if the firm or management’s neck is on the line. Advisors must avoid this by retaining a real, ethically bound lawyer who respects and preserves their confidences.
Second, when a client retains an attorney, a written engagement letter is encouraged if not required in all jurisdictions. Any issues or concerns related to that attorney-client representation must be detailed in what is known as a “Conflicts” letter. The letter is designed to educate the client as to potential conflicts of interest, possible lapses in the exercise of independent judgment or loyalty, and possible issues with the degree of zealousness a lawyer may have in defending that client. The letter must identify those conflicts that are present now or which may be present in the future. Additionally, the lawyer must disclose alternatives (such as selecting other counsel) to avoid such issues. Finally, the lawyer must obtain the client’s knowing, complete, and express written consent to proceed with brokerage firm-referred counsel despite the disclosed shortcomings. Regrettably, we have seen several instances in which there are no such conflicts letters, let alone written engagement letters, in clear breach of numerous ethical obligations, leaving advisors ignorant as to what lies ahead.
The attorneys of Eccleston Law LLC represent investors and advisors nationwide in securities and employment matters. The securities lawyers at Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities Fraud, Compliance Protection, Breach of Fiduciary Duty, FINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.
Related Attorneys: James J. Eccleston
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