A Question

Aug 7, 2006 3:18 pm

A question for those of you who work for Jones and/or those of you who run your own shops as part of LPL, RJFS, or the others.

If a client decides that you are the reason their portfolio underperformed and ends up talking to an attorney.

Will the attorney who represents your B/D also represent you as part of their obligation to the B/D--or will you be expected to obtain your own counsel?

Aug 7, 2006 3:51 pm

Apparently the LPL attorney will represent me to a point.  Having said that, his  primary obligation is to his employer , not me.  If discussions developed  past anything but the most preliminary stage I would retain my own attorney.<!–
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Aug 7, 2006 4:05 pm

[quote=joedabrkr]Apparently the LPL attorney will represent me to a point.  Having said that, his  primary obligation is to his employer , not me.  If discussions developed  past anything but the most preliminary stage I would retain my own attorney.<!-- var SymRealOnLoad; var SymReal;

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So when y'all talk about how much money you're making are you including setting aside a warchest for potential legal fees?

What if the arbitration goes against you?

Aug 7, 2006 4:32 pm

That’s what E&O is for.

Aug 7, 2006 4:37 pm

[quote=Indyone]That's what E&O is for.[/quote]

What is your premium on that, for how much coverage, and what is your deductible?

Aug 7, 2006 4:39 pm

[quote=NASD Newbie]

[quote=Indyone]That's what E&O is for.[/quote]

What is your premium on that, for how much coverage, and what is your deductible?

[/quote]

Newbie I thought you are or where in mangagement?  Would you not know this?

Aug 7, 2006 4:44 pm

[quote=Greenbacks][quote=NASD Newbie]

[quote=Indyone]That's what E&O is for.[/quote]

What is your premium on that, for how much coverage, and what is your deductible?

[/quote]

Newbie I thought you are or where in mangagement?  Would you not know this?

[/quote]

I ask questions to lead to discussions.  When I say things people start whining that I am a know it all.

Aug 7, 2006 4:45 pm

$170/mo

$5,000,000/$20,000,000

$5,000-$20,000 depending on claim size

You've now exceeded your daily question limit, so if you need anything else, check back tomorrow...I've got work to do.

Aug 7, 2006 4:52 pm

[quote=Indyone]

$170/mo

$5,000,000/$20,000,000

$5,000-$20,000 depending on claim size

You've now exceeded your daily question limit, so if you need anything else, check back tomorrow...I've got work to do.

[/quote]

Does your policy protect you regardless of the allegation?

Aug 7, 2006 4:54 pm

[quote=NASD Newbie][quote=Greenbacks][quote=NASD Newbie]

[quote=Indyone]That's what E&O is for.[/quote]

What is your premium on that, for how much coverage, and what is your deductible?

[/quote]

Newbie I thought you are or where in mangagement?  Would you not know this?

[/quote]

I ask questions to lead to discussions.  When I say things people start whining that I am a know it all.

[/quote]

Gee Mister Newbie, why in tarnation would anyone be sayin' that 'bout you?!?! 
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Aug 7, 2006 7:04 pm

You are such the little catalyst.

Aug 7, 2006 8:25 pm

[quote=NASD Newbie][quote=Indyone]

$170/mo

$5,000,000/$20,000,000

$5,000-$20,000 depending on claim size

You've now exceeded your daily question limit, so if you need anything else, check back tomorrow...I've got work to do.

[/quote]

Does your policy protect you regardless of the allegation?

[/quote]

Similar to Indyone, with different levels of coverage for non brokerage and brokerage related business.

Obviously we aren't protected or covered if we are convicted of fraudulent acts.  But until that is proven, we are covered.  My B/D is the insured and I am listed as an additional insured under that policy as an individual.   The coverage doesn't extend to agencies or entities that the individuals may work for as a part of the independent structure.  Like any insurance policy, there are also deductibles which are based on the type of business on which the claim is based.

EDJ doesnt'/didn't offer any E&O coverage.  We were told that the company would stand behind us if we were sued.   Riiiiight.

Aug 7, 2006 8:30 pm

[quote=babbling looney][quote=NASD Newbie][quote=Indyone]

$170/mo

$5,000,000/$20,000,000

$5,000-$20,000 depending on claim size

You've now exceeded your daily question limit, so if you need anything else, check back tomorrow...I've got work to do.

[/quote]

Does your policy protect you regardless of the allegation?

[/quote]

Similar to Indyone, with different levels of coverage for non brokerage and brokerage related business.

Obviously we aren't protected or covered if we are convicted of fraudulent acts.  But until that is proven, we are covered.  My B/D is the insured and I am listed as an additional insured under that policy as an individual.   The coverage doesn't extend to agencies or entities that the individuals may work for as a part of the independent structure.  Like any insurance policy, there are also deductibles which are based on the type of business on which the claim is based.

EDJ doesnt'/didn't offer any E&O coverage.  We were told that the company would stand behind us if we were sued.   Riiiiight.

[/quote]

I am still amazed that EdJones doesn't offer liability coverage.
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Aug 7, 2006 8:35 pm

How about coverage if you're a transaction oriented broker?

Suppose all you do is manage speculator accounts in the futures market?

My point is this--how can an insurance company possibly extend coverage to an individual who might decide to churn an account because he would be protected from liability by his E&O coverage?

Aug 7, 2006 9:07 pm

[quote=NASD Newbie]

How about coverage if you're a transaction oriented broker?

Suppose all you do is manage speculator accounts in the futures market?

My point is this--how can an insurance company possibly extend coverage to an individual who might decide to churn an account because he would be protected from liability by his E&O coverage?

[/quote]

Aug 7, 2006 9:15 pm

[quote=babbling looney][quote=NASD Newbie]

How about coverage if you're a transaction oriented broker?

Suppose all you do is manage speculator accounts in the futures market?

My point is this--how can an insurance company possibly extend coverage to an individual who might decide to churn an account because he would be protected from liability by his E&O coverage?

[/quote]

OOPS....wrong button.

[/quote]

Obviously we aren't protected or covered if we are convicted of fraudulent acts.   The same goes for illegal activities.  You are not protected.

In addition the deductible for transaction types of activities is much higher than that for life insurance and so on.   Should the insurance company decide to settle the claim, and they often do so despite the protests and innocence of the agent, the agent is responsible for the deductible.

How can an insurance company possibly extend coverage to a driver who might get into an accident by driving in the fast lane on the LA Freeway?  They do it by overcharging the many to cover the costs of the claims against the few. 

Aug 7, 2006 10:27 pm

What a patient group of people.  Honestly, this NASD seems like a waste of skin. 

Aug 7, 2006 10:42 pm

[quote=babbling looney]

How can an insurance company possibly extend coverage to a driver who might get into an accident by driving in the fast lane on the LA Freeway?  They do it by overcharging the many to cover the costs of the claims against the few.  [/quote]

That's not a good analogy.  A person who intentionally drives dangerously is concerned about his own demise.

A broker who intentionally churns an account suffers in no way if he or she knows that there will be an insurance company standing behind them.

Unless you are a rouge broker your B/D should defend you with the same attorney who is engaged to defend them.

You should not need E&O insurance if you're honest, and if you're not you should not be eligible for it.

Aug 7, 2006 10:46 pm

rouge?  stinkin' commie brokers!

Aug 7, 2006 10:57 pm

[quote=NASD Newbie]

[quote=babbling looney]

How can an insurance company possibly extend coverage to a driver who might get into an accident by driving in the fast lane on the LA Freeway?  They do it by overcharging the many to cover the costs of the claims against the few.  [/quote]

That's not a good analogy.  A person who intentionally drives dangerously is concerned about his own demise.

A broker who intentionally churns an account suffers in no way if he or she knows that there will be an insurance company standing behind them.

How many ways can I say it??  The insurance company will NOT stand behind you if you are churning, twisting or participating in any other forbidden activity.  NOT NOT NOT......

Unless you are a rouge broker your B/D should defend you with the same attorney who is engaged to defend them.

You should not need E&O insurance if you're honest, and if you're not you should not be eligible for it.

So you don't need homeowners insurance or uninsured motorist coverage because you don't play with matches and you drive carefully?  E&O insurance is to protect us against unintentional errors, omissions and against frivolous claims from clients.

[/quote]
Aug 7, 2006 11:04 pm

Let's take this a bit farther--or is it further?

Suppose I am a broker with Smith Barney and I have a friend with $100,000.  I explain to him that I have E&O insurance with a $10,000 deductible and that if he loses all he has to do is file an arbitration claim against me and my insurance company will give him back $90.000 and I will give him back $10,000.

He agrees to allow me to trade multi-leg option strategies in his account on a discretionary basis.

Historically option trading accounts can generate commissions approaching a sum that is equal to the equity in the account--per year.

So, over the next three to four years I turn his $100,000 into $5,000 in equity and about $300,000 in commissions--of which I net more than $100,000.

It is damn near impossible to prove I did it intentionally--because I didn't.  I would have been very pleased if he had made money instead of losing.

At the hearing an expert witness testifies that I churched the account, but my expert countered that by saying that the nature of the options market is to turn over rapidly.

When my friend testifies he tells the panel that I kept him fully informed, gave him detailed information about his losses each year but that he really did not understand how risky the options market is.  He further testifies that I kept reassuring him that "our luck" will change.

The panel decides that he should get his money back because he seemed to be honestly confused by the risks of the options market.

Do you think my insurance will pick up the award?

Aug 7, 2006 11:16 pm

rouge? Baton Rouge? or maybe rogue? <!–
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Aug 7, 2006 11:24 pm

No, not ever.  Your intention was to commit fraud against the insurance company by your first statement.  The fact that you did trading that you knew was out of your “friends” risk level and investment experience would also preclude you from being covered, and probably even land you in jail.  And as a result of your actions you have just make MY E&O insurance premiums go up.  Thanks a bunch.

By the way.... I may be called a rouge broker because I wear makeup.  You would be a called a rogue broker (or very strange if you did wear makeup).

Further

Aug 7, 2006 11:52 pm

[quote=babbling looney]

No, not ever.  Your intention was to commit fraud against the insurance company by your first statement.  The fact that you did trading that you knew was out of your "friends" risk level and investment experience would also preclude you from being covered, and probably even land you in jail.  And as a result of your actions you have just make MY E&O insurance premiums go up.  Thanks a bunch.

By the way.... I may be called a rouge broker because I wear makeup.  You would be a called a rogue broker (or very strange if you did wear makeup).

Further

[/quote]

How can you prove an intent to defraud the insurance company?

The trading was perfectly acceptable as far as his risk tollerance and I did all I could to educate him--we often discussed the strategies he was doing and what had to happen for him to profit.

He signed all of the documents and even an activity letter--but he was very convincing when he told the panel that he really didn't understand the risks.  That's the thing, if he wanted to demonstrate great knowledge he could have done so, but he didn't want to demonstrate the knowledge so all he had to say, again and again, was "Me no comprende."

What is a scenario where you could imagine your coverage paying off?

Aug 8, 2006 2:08 am

Is this a real scenario or did you make it up, NASD?  It seems odd that the arbitration panel would refund his investment if it went on for several years and the client testified that he was kept "fully informed" during the entire time.  Honest confusion about the details of options trading should not ding the advisor.

However, in your example I would hope that E&O would cover this as an omission of the details of options trading.  And if it's a real-world example and not one you made up; what was the actual result?  Did E&O cover it?

Aug 8, 2006 2:56 am

[quote=NASD Newbie]

Let's take this a bit farther--or is it further?

[/quote]

interesting:

Usage Note: Since the Middle English period many writers have used farther and further interchangeably. According to a relatively recent rule, however, farther should be reserved for physical distance and further for nonphysical, metaphorical advancement. Thus 74 percent of the Usage Panel prefers farther in the sentence If you are planning to drive any farther than Ukiah, you'd better carry chains, and 64 percent prefers further in the sentence We won't be able to answer these questions until we are further along in our research. In many cases, however, the distinction is not easy to draw. If we speak of a statement that is far from the truth, for example, we should also allow the use of farther in a sentence such as Nothing could be farther from the truth. But Nothing could be further from the truth is so well established as to seem a fixed expression.