“It’s My Money and I Want It Now!”

By: Dowdy White, Spring 2018 IAC Student Intern

As an avid fan of the Atlanta Falcons and the University of Georgia Bulldogs, I know a lot about heartbreak. The feeling of having the lead in a championship game and then ultimately losing is one that I know all too well. Similar to having the lead in a big game, it’s a great feeling thinking that you have money in the bank. In fact, the feeling you get when you think you’re about to come into a major payday is often so great that you treat yourself by going out to dinner, taking a trip to the movie theater, or throwing a party. If the money you think you have in the bank is coming from an award given to you in a FINRA arbitration proceeding, you might want to be cautious – just because you receive an award does not mean you always get paid. Continue reading

Split Loyalties: Circuit Courts Render Inconsistent Rulings on DOL Fiduciary Rule

By: Esmat Hanano, IAC Intern Spring 2018

The Department of Labor’s fiduciary regulation (“Fiduciary Rule”) covering the work of financial advisers faces an uncertain future in the wake of conflicting federal rulings. Not only do the rulings cast the status of the fiduciary rule into doubt, but they also create confusion within the financial industry that could have an impact on retail investors. Accordingly, these rulings and their implications must be understood so that investors can continue making informed decisions.

The fiduciary rule requires all financial advisers to act in their client’s best interest when giving advice about retirement accounts, individual retirement accounts, and 401(k)s. The rule was crafted six-years during the Obama administration. It took partial effect in June 2017, but the Trump administration has delayed full implementation by eighteen months. Previously, not all individuals providing investment advice were held to a fiduciary standard.

On March 13, the Tenth Circuit Court of Appeals upheld the Department of Labor’s fiduciary rule. The Tenth Circuit’s opinion analyzed different evidence put forth by the Department of Labor and determined that the decision to create the rule was not “arbitrary or capricious.” In fact, the Tenth Circuit concluded that the new regulation “. . . would promote innovation, and it would save investors millions of dollars by reducing or curtailing conflicted advice from fiduciaries.” The Tenth Circuit’s ruling echoes the reasoning of investor-oriented groups, such as the Public Investors Arbitration Bar Association (“PIABA”). In a press release, PIABA stated that the fiduciary rule would save investors billions of dollars every year and that the rule protects investor’s best interests.

Two days later, on March 15, the Fifth Circuit Court of Appeals reached a different result and vacated the rule. The Fifth Circuit’s opinion focused on the Department of Labor’s authority and whether it can even promulgate the regulation to begin with. The analysis of the Fifth Circuit concluded that the regulation was “arbitrary and capricious” and “in excess of statutory authority.” According to the Fifth Circuit, the Department of Labor usurped the role of Congress by trying to enact a law—a power expressly left to the legislative branch. The Fifth Circuit feared that the Department of Labor had “def[ied] Congressional limits” and would “lord it over people.”

The Fifth and Tenth Circuit’s rulings stand in direct opposition to each other. A circuit split of this nature is likely to come before the Supreme Court if there is no change in the Fifth Circuit’s ruling in an en banc hearing. Whatever happens, the repercussions will be felt by both the financial industry and retail investors.

What is the Customer Protection Rule?

By Eric Peters, Spring 2018 IAC Student Intern

In December 2017, the Financial Industry Regulatory Authority (FINRA) announced that J.P. Morgan had been fined $2.8 million for violating the SEC’s Customer Protection Rule and for supervisory failures taking place from March 2008 to June 2016.  The Customer Protection Rule is intended to safeguard customers’ cash and securities so that they can be promptly returned should the broker-dealer become insolvent.  The rule requires firms to segregate customer securities and restricts them from using these segregated securities for their own purposes. Continue reading

Clinic Comments on Proposed Changes to Simplified Arbitration

As part of its mission of serving regular investors, the Investor Advocacy Clinic reviews FINRA rule proposals and submits comments after fully evaluating the proposal.  Last week, the clinic commented on FINRA SR-2018-003, a proposal that would provide additional options to investors with smaller claims to have their disputes heard by arbitrators.

The clinic’s comment, drafted by spring 2018 student interns Abigail Howd, Eric Peters, and Dowdy White, praised FINRA for taking steps to provide investors with smaller claims a third option: telephonic hearings.  Currently, investors with so-called simplified claims (damages of $50,000 or less) have two choices: either a proceeding entirely on the papers, with no ability to tell their story in person, or a full-blown arbitration proceeding.  The proposal adds an intermediate option, and the Investor Advocacy Clinic supports it.  The student attorneys also recommended mandatory, in-person training and specialized expertise for arbitrators who oversee the new proceedings.  They proposed additional changes, including renaming the overall process to “Small Claims Arbitration” instead of “Simplified Arbitration” because the student attorneys have found that their clients’ claims are anything but simple.  Finally, the student attorneys recommended that mandatory discovery be part of the new process.  Click here to read the Clinic’s comment letter in its entirety.

Investor Alert: Considering Opting Out of a Class Action Lawsuit?

By Alisa Radut, IAC Student Intern Spring 2018

Have you ever received a notice of a class action informing you of a pending lawsuit of which you may be a part? For some investors, opting out of the class might make sense.  FINRA provides useful information you should know about securities class actions lawsuits.  Continue reading

Wednesday’s Word: Securitization

By Eric Peters, Spring 2018 IAC Student Intern

Securitization is a process that has been developed, essentially, to take various types of debt instruments that were rarely traded and turn them into tradable securities, resulting in greater liquidity.  As such, the goal of the securitization is threefold: 1.) increase the liquidity of debt instruments, 2.) lower the cost of capital to borrowers, and 3.) increase the efficiency of financial markets. Continue reading

ABLE Accounts

By Alisa Radut, IAC Student Intern Spring 2018

In thinking about investing for future retirement, you may need to consider savings to provide for disability-related expenses.  One type of account serves exactly this purpose: the Achieving a Better Life Experience (ABLE) account.  An account can be created for a beneficiary, including by a parent, guardian, or holder of a power of attorney.  Accounts are available to beneficiaries who incurred a qualifying disability before the age of 26.  The amount you can contribute to this account is currently limited to $15,000 per year and is subject to an aggregate limit. Continue reading