The Massachusetts Securities Division charged Scottrade on Thursday with violating the impartial conduct standards laid out in the Labor Department's fiduciary rule, which took effect on June 9, 2017.
Commonwealth Secretary William Galvin, the state's top securities regulator, charged the broker-dealer with “dishonest and unethical activity and failure to supervise” for conducting sales contests that violated Labor's impartial conduct standards.
Despite Scottrade adopting a rule to adhere to the impartial conduct standards that prohibited sales quotas, appraisals, bonuses, contests and other incentives for retirement or prospective retirement account clients, the broker-dealer “held at least two sales contests which included retirement assets” after June 9, the complaint states.
The complaint states that prior to the impartial conduct standards becoming effective, “Scottrade employed a firmwide culture characterized by aggressive sales practices and incentive-based programs.”
For example, from December 2015 to April 2017, Scottrade conducted a “series of call nights and sales contests, in part to drum up additional business in light of an upcoming merger with TD Ameritrade,” the complaint states.
By conducting at least two sales contests after June 9, Scottrade failed to enforce the new standards it had put in place.
“The performance of agents who participated in the contests was tracked and appraised, and awards and incentives were given out in connection with retirement assets,” according to the complaint.
TD Ameritrade, which acquired Scottrade in September, says that it does not comment on pending regulatory or legal matters.
Galvin has been a vocal supporter of Labor's fiduciary rule. Massachusetts' action looks to be the first action taken by a state regarding fiduciary rule compliance.
“Despite the efforts in Washington to kill the fiduciary rule, the impartial conduct provision remains in place,” Galvin said Thursday in announcing the complaint against Scottrade. “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.”
The complaint against Scottrade seeks a cease and desist order, censure and an administrative fine.
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
