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Scottrade Lands in DOL Fiduciary Rule Hot Water

February 16, 2018

In what appears to be the first case of a state securities regulator upholding the Department of Labor’s fiduciary rule, the Massachusetts Securities Division has charged Scottrade with violating the rule’s impartial conduct requirements, ThinkAdvisor writes.

Commonwealth Secretary William Galvin, the state’s top securities watchdog, says sales contests at Scottrade violated the rule, which purports to require retirement account advisors to put clients’ interests first and was partially implemented in June 2017, according to the publication.

Scottrade allegedly adopted a rule adhering to a standard banning quotas, bonuses, contests and other incentives to drive sales to retirement account clients or those who could become clients, according to the complaint cited by ThinkAdvisor. Nonetheless, the firm conducted at least two such contests after the DOL’s rule went into partial effect, according to the complaint. And prior to the impartial conduct standards going into effect at the firm, Scottrade had a culture of “aggressive sales practices and incentive-based programs,” the publication writes, citing the complaint.

Galvin, who’s been an ardent supporter of the DOL’s rule, says in the complaint that “the impartial conduct provision remains in place” despite pressure from Washington to kill the rule, ThinkAdvisor writes.

The rule’s final implementation date, originally scheduled for this January, has been pushed back to July 2019, following a directive from President Donald Trump to review the rule’s impact on retirement savers and the wealth management industry.

And Labor Secretary Alexander Acosta has said the agency would go after “willful violations” of the rule but clarified that the DOL is at the “compliance assistance” stage.

“If the Department of Labor will not enforce its own laws and rules, then the states must do what they can to protect retirees from firms who believe they can play with peoples’ life savings by conducting sophomoric contests,” Galvin says in the statement cited by ThinkAdvisor.

TD Ameritrade, which in September acquired Scottrade, tells the publication that it doesn’t comment on pending regulatory matters. The state’s securities division is seeking a cease and desist order, censure and administrative fines, according to ThinkAdvisor.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.