William Galvin, secretary of the Commonwealth of Massachusetts, filed charges against Scottrade, alleging the firm knowingly violated the Department of Labor’s fiduciary rule by holding a series of call nights and sales contests to drum up new business ahead of its planned merger with TD Ameritrade.
“Massachusetts retirement account holders, regardless of portfolio size, should be advised by professionals who put the interests of their customers ahead of their own,” Galvin's complaint states. “In response to a firm-wide culture characterized by aggressive sales practices, Scottrade and its agents neglected their duty to Massachusetts retirees while focusing on gathering new assets in anticipation of the TD Ameritrade merger.”
Although the second phase of the DOL rule implementation has been delayed to July 1, 2019, the impartial conduct standards of the DOL fiduciary rule took effect June 9, 2017. Scottrade added language to its brokerage and investment advisor compliance manuals to reflect that, saying the firm does not rely upon quotas, bonuses, contests and other things that would cause its employees to make recommendations that would not be in the best interest of retirement plan clients.
Yet, Galvin alleges, the firm did. Between December 2015 and June 2016, the firm ran three national call nights, which involved cold calling customers in exchange for raffle tickets. The firm then launched quarterly sales contests, which offered at least $490,000 in prizes.
In June 2017, the firm launched the Q3 Win and Retain Sales Contest, which encouraged brokers to bring in new assets, particularly retirement accounts. It offered $285,000 in prize money and paid out $2,500 per agent to the top 25 branches by percentage increase in net new assets, the state claims. Several Massachusetts-based representatives won prizes.
Scottrade then held another sales contest from August to September 2017, in which 26 Massachusetts-based agents participated. Agents could win prizes by making recommendations and referrals to its investment advisory program.
The firm was charged for failing to supervise its agents, investment advisor representatives or other employees to comply with the fiduciary rule, and for violating its own internal policies related to the rule.
Massachusetts is requiring the firm to cease and desist from the conduct; the firm is censured and must pay an administrative fine.
A spokesman for TD Ameritrade declined to comment.