Massachusetts accuses Scottrade of violating DOL rule
William Galvin, secretary of the Commonwealth of Massachusetts, filed suit against Scottrade, alleging the company knowingly violated the Department of Labor’s fiduciary rule by hosting a series of phone parties and sales contests to create new business before its merger planned with TD Ameritrade.
“Massachusetts retirement account holders, regardless of the size of their portfolio, should be advised by professionals who put the interests of their clients before their own,” Galvin’s complaint states. “In response to a company-wide culture characterized by aggressive sales practices, Scottrade and its agents neglected their duty to Massachusetts retirees while focusing on raising new assets in anticipation of the merger. TD Ameritrade.”
Although the second phase of DOL Rule implementation was delayed until July 1, 2019, the DOL Fiduciary Rule Unbiased Standards of Conduct went into effect June 9, 2017. Scottrade has added language to its compliance of brokers and investment advisers to reflect this, saying the company does not rely on quotas, bonuses, contests and other things that would cause its employees to make recommendations that are not within the best interests of pension plan clients.
Yet, according to Galvin, the company did. Between December 2015 and June 2016, the company hosted three nationwide phone parties, which involved cold calling customers in exchange for raffle tickets. The company then launched quarterly sales contests, which offered at least $490,000 in prizes.
In June 2017, the company launched the Q3 Win and Retain Sales contest, which encouraged brokers to contribute new assets, especially retirement accounts. It offered $285,000 in prizes and paid out $2,500 per agent to the top 25 branches by percentage increase in net new assets, according to the state. Several Massachusetts-based representatives have won awards.
Scottrade then held another sales contest from August to September 2017, in which 26 Massachusetts-based agents participated. Agents could win prizes for making recommendations and referring to its investment advice program.
The firm has been accused of failing to supervise its agents, investment adviser representatives or other employees to comply with the fiduciary rule, and of violating its own internal policies related to the rule.
Massachusetts requires the company to cease and desist from conduct; the company is censored and must pay an administrative fine.
A TD Ameritrade spokesperson declined to comment.