WealthManagement Magazine

Do the Right Thing

As many of you know, I'm not bashful about making you aware of mistakes by the SEC or the NASDR in their jobs as regulators. So I think it's only right that I also make you aware when these organizations do something in best interests of investors and brokers. I'd like to praise them for doing the right thing in a recent case.On Nov. 20, 2000, the NASDR filed a civil administrative complaint alleging

As many of you know, I'm not bashful about making you aware of mistakes by the SEC or the NASDR in their jobs as regulators. So I think it's only right that I also make you aware when these organizations do something in best interests of investors and brokers. I'd like to praise them for doing the right thing in a recent case.

On Nov. 20, 2000, the NASDR filed a civil administrative complaint alleging that Dean Witter Reynolds violated antifraud provisions of securities laws by misstating the risks of its TCW/DW Term Trusts to more than 100,000 customers.

The Wall Street Journal reported the claim in its "Heard on the Street" column the same day it was filed. In that column, the newspaper states:

"The NASD says the road show materials didn't contain any mention of any risks associated with the term trusts. While the sales materials for the first term trust included a pie chart showing inverse floaters would constitute 25% to 30% of the fund, the NASD said: `As a result of concerns raised by brokers [emphasis added] during road show presentations about inverse floaters, Dean Witter removed any mention of them from future presentations.'"

It is important to note here that brokers are the ones who voiced their concerns about the inverse floaters. This is something you should be proud of. Apparently, there were a lot of Dean Witter reps who knew that when interest rates went back up, the product really wasn't going to be "everything you want from a CD and more."

With the mention of inverse floaters out of the road show presentation, unsuspecting and trusting brokers, pressured by management, put more than $2 billion in the fund. Dean Witter, according to the NASDR claim, used "high-pressure sales efforts at the regional and branch office levels, including the use of sales contests and sales quotas." The NASDR went on to say that Dean Witter brokers were paid higher commissions for the sale of proprietary products and were strongly encouraged to sell at least 75% proprietary funds.

Hats off to NASDR enforcement for doing the right thing - for its willingness to take on a major dealer (Morgan Stanley Dean Witter is still contesting the charges) and for recognizing the role individual brokers play in protecting the public.

Those of us who have worked at large brokerage firms have experienced the pressure from management to sell risky, high-margin products of dubious benefit to our clients. Many reps have succumbed to the pressure for fear of losing their jobs. Others have sold these products not because of pressure, but simply because they trusted the management of their company. And still others have not sold such products, choosing to do the right thing.

During this time when our leaders don't seem able to do the right thing, I like to read a prayer former President Harry Truman said every day in his years as president. President Truman's prayer was: "Help me to be, to think, to act what is right - because it is right. Make me truthful, honest and honorable in all things. Make me intellectually honest for the sake of right and honor, and without thought of reward to me."

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