The Financial Industry Regulatory Authority has penalized a former broker with Stifel, Nicolaus & Co. for actions that were not in the best interest of his clients, Advisor Hub reports.
Jonathan B. Webster was suspended for seven months after FINRA determined that he had placed older clients’ trades in commission-based brokerage accounts rather than less expensive fee-based advisory accounts, thus violating Regulation Best Interest.
“In November 2023, Webster recommended that 19 of his retail customers, at least 13 of whom were seniors, open or use existing commission-based brokerage accounts to execute a 10-stock short-term strategy he called the “January Effect,” FINRA stated in its settlement letter. “The strategy involved buying stocks in December and selling them after the new year to profit from his predicted January bump in price. Although Webster could have recommended his customers buy the stocks in their existing fee-based advisory accounts at a lower comparative cost, Webster recommended that the customers open new or use existing brokerage accounts to imp1ement the strategy.”
In December 2023, Webster bought the same ten stocks in each of the customers’ brokerage accounts. Collectively, Webster’s trades in the customers’ brokerage accounts required the customers to pay $121,725.58 in unnecessary commissions that the customers would not have had to pay had Webster purchased the stocks in their advisory accounts.
“Webster did not have a reasonable basis to believe that buying the stocks at a greater cost in the brokerage accounts was in the customers’ best interests,” FINRA said. He was found to have violated the Care of Obligation of the Securities and Exchange Commission’s Regulation Best Interest and FINRA Rule 2010, which requires member firms and associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.
FINRA’s investigation originated after Stifel filed a Unifom1 Termination Notice for Securities Industry Registration (Form US) in February 2024 disclosing that Webster “placed trades for customers in newly opened commission-based accounts that should have been placed in existing fee-based accounts.”
FINRA added that in January 2024, Stifel identified Webster’s misconduct, refunded all commissions to customers, and rebilled the trades to their advisory accounts. As a result, the customers did not pay any unnecessary charges, and Webster did not retain any commissions for the trades at issue.
Regulation Best Interest requires broker dealers to exercise reasonable diligence, care, and skill to, among other things, have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that customer’s investment profile and the potential risks. rewards. and costs associated with the recommendation.
FINRA said it did not impose a monetary sanction on Webster because he had filed for bankruptcy last year.
A Stifel spokesperson was not immediately able to comment. Webster’s lawyer, James D. Sallah of Sallah Astarita & Cox in Boca Raton, Florida, declined to comment on the findings.
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