Q:

As a nonproducing registered representative who acts in a purely operational and/or compliance capacity, how much “noise” are we expected — or allowed — to make when home-office issues become too unbearable? Our broker/dealer is constantly losing documents that we mail in, and is chronic in its delay of entering client account transfers. The assistants in the office are on the phone constantly to the home office following up on previously sent documents simply to ensure that they have been received and that they have been entered into the workflow correctly and in a timely manner. When we bring our grievances to the attention of the powers-that-be, we are met with a tepid response or a list of infractions that our office is alleged to have committed.

The basic question is what rights and/or obligations does the home office have to its representatives to maintain a support staff that is able to efficiently and correctly process the paperwork that is sent to them?

The situation is serious enough that several representatives have begun discussions to take legal action against the b/d for various types of misconduct. Although we have been constantly assured over the last 18 months that things will “get better,” they have not.

The most recent communication from the b/d management indicates that things will get better by January 2006. Should we move ahead with the legal angle? Do you feel that this is unreasonable? Do you feel that the threat of legal action would be sufficient to finally get the attention needed?

A:

This poor level of service from your firm's back office unfortunately isn't an uncommon experience due to the wave of back-office consolidations and corporate downsizing of recent years. Nonetheless, your concern is well founded. These back-office snafus could very well lead to legal and regulatory problems for the firm, depending upon the circumstances.

With that in mind, it's incumbent upon you to work with the producing reps of your branch to find an appropriate solution. Although filing a lawsuit is very tempting in this frustrating situation, it would not be the most effective way to resolve these back-office problems. If a group of reps filed a lawsuit against the firm, it's likely that the firm's leadership would consider this a declaration of war.

Alternatively, I'd encourage the firm's top reps to unite and arrange a private meeting with the firm's executives to discuss its services problems. In particular, the delegation of reps should request objective, measurable service standards from the back office, including a monthly report card and an action plan for improving the firm's service.

Additionally, the reps should ask the firm to establish an advisory board consisting of sales or service assistants from the branches that could track back-office performance and provide tactical feedback about how to improve the processing of business.

Finally, the reps should press management to change the firm's compensation structure so that it provides incentives to employees for high rep satisfaction ratings and a low rate of rep terminations.

If your firm is resistant to implementing these types of improvements, your reps should start preparing for a move to another firm. Fortunately, there are numerous brokerage firms committed to high service standards that have properly staffed their back office and made significant investments in their back-office technology platforms in order to provide outstanding service.

Bryan Hill, Attorney-At-Law
Omaha, Neb.
402-345-4034

bhill@advocateforinvestors.com

A:

The situation you describe is not uncommon in today's multi-office b/ds. Many operational/compliance personnel regularly complain that home-office personnel ignore their needs and problems, especially when processing needed client transactions.

Unfortunately, there is usually no basis for legal action against one's own employer, unless, of course, the home office has some contractual obligation to the registered representative in the branch office. Many independent b/ds — firms that essentially rent out clearing arrangements to various branch offices across the country — have defined terms and conditions that home offices must follow. In fact, these arrangements are, generally, governed by contract, and require the home office to ensure compliance with regulatory requirements and process customer transactions in an appropriate time.

However, branch offices of large b/ds, including many of the top Wall Street firms, do not have such contractual arrangements with their branch offices because they consider their branch offices to be part of one corporate entity. As such, the registered representatives are employees of the same corporate entity as those personnel in the home office.

Nonetheless, your predicament should not force you to roll over or crawl under a rock. The problems you state in your question are serious and need to be addressed in a coherent and productive fashion. Initially, document all of the infractions that the home-office staff has caused you and your clients. (Frankly, without such proof, there is no point in complaining.) These infractions should then be transmitted to the head of your branch office, who can address them with his or her colleagues in the home office. Hopefully, this informal contact will be effective and correct the situation.

If these communications are unable to resolve the problem, there are other alternatives. For example, after documenting the problems in the branch office, present this information to the home office's legal and compliance departments. These individuals are obligated to follow relevant federal and state securities laws and SRO rules and regulations. The departments, most likely, will raise your issues with appropriate home-office senior management.

Additionally, if your concerns stem from illegal or volatile conduct, you may have an obligation to report these matters to the appropriate regulatory authorities. If there is illegal activity, these regulatory authorities will probably question home-office senior management and compliance about these matters, and, most assuredly, the home office will correct the problems.

This may seem like a radical approach (and it may sound selfish), but, sensing your question's undertone, you should protect yourself from a charge of illegal activity. There is nearly no protection afforded to those who know of illegal activity and choose to do nothing about it until someone else steps forward and reports it. Further, if you fear job loss, federal or state whistleblower statutes may cover you.

In sum, your options range from informal discussions to reporting illegal activity to various regulatory authorities. Each option has its costs and benefits, and should only be undertaken after carefully reviewing your options. As the knight in the Indiana Jones and the Last Crusade movie said, “Choose wisely!”

Ernest Badway
Saiber Schlesinger Satz & Goldstein
Newark, N.J.
973-622-3333

EEB@saiber.com

Ethical Rep is a monthly feature in which more than 30 prominent securities attorneys, experts and law school professors help Rep. readers deal with work-related ethical quandaries. Have you encountered a situation at work that makes you uncomfortable? Are you confused about how your responsibilities to clients might change as regulations continue to evolve? Drop a line to Rep.'s contributing editor, Ann Therese Palmer, and our group of experts will help you work through the problem.

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