Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Lance Spencer (Spencer), previously associated with Fidelity Brokerage Services LLC, has at least one disclosable event. These events include one customer complaint, alleging that Spencer recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a settled customer complaint with a damage request of $1,500,000.00 on August 21, 2024.
I met [REDACTED] and [REDACTED] in 2012 as an Account Executive at Fidelity Investments in Chandler, AZ, and maintained a professional relationship with them until I left Fidelity in November 2020. When I became an independent advisor, I managed an options strategy for clients involving covered call writing and a deep-in-the-money short put income strategy. I did not initially discuss this strategy with the [REDACTED] until March 2022, when they inquired. After explaining the strategy and associated risks, they expressed enthusiasm and committed funds.\<char_lb_r>\, \<char_lb_r>\, [REDACTED] started with approximately $1M (7.4% of his assets with me) and [REDACTED] with $600K (8%). Both had comparable holdings in real estate and saw their portfolios as sufficiently diversified. Due to success in 2022, they increased their exposure, which grew to about 20% of their AUM with me by February 2024.\<char_lb_r>\, \<char_lb_r>\, In July 2023, my RIA updated our ADV to clarify options strategy language, including performance fees and the high-water mark. We met with each client using the strategy, including the [REDACTED], to review and sign the revised ADV. At the time, we had not experienced any monthly losses, which likely contributed to their confidence.\<char_lb_r>\, \<char_lb_r>\, [REDACTED] regularly asked about potential losses. I reminded him that while we experienced 10% losses on individual positions nearly every month, our overall results had remained positive. I emphasized our diversification, use of weekly expirations to limit risk, and the inherent risks of naked puts. We held monthly summary calls and consistently reminded them that losses were possible and even expected in some months.\<char_lb_r>\, \<char_lb_r>\, In March 2024, we experienced our first monthly loss due to two assigned positions. [REDACTED], [REDACTED], and [REDACTED] son-in-law, [REDACTED] (a participant since 2023), chose to continue in the strategy. We discussed a recovery plan extensively. By June, [REDACTED] account had recovered to the high-water mark, but [REDACTED] had not. In the final week of July, new losses occurred due to market volatility, particularly in tech/semiconductors, followed by a broader downturn on August 5th triggered by a Japanese rate hike.\<char_lb_r>\, \<char_lb_r>\, We met that evening, and the [REDACTED] insisted all positions be closed the next day, despite our proposal to trade out of some losses. On August 6th, [REDACTED] incurred a $1.6M loss, leaving him with an $834K gain since inception (9.1% annualized). [REDACTED] lost $610K, resulting in a $132K net loss. [REDACTED] lost $184K, netting a $74K total loss.\<char_lb_r>\, \<char_lb_r>\, They held the assigned stock until August 12, then directed us to sell. By week’s end, the market had rebounded. [REDACTED] remarked, ‘If we had not sold everything, we would have lost a lot less.’ I agreed that recovery could have reached about 70% of losses, as seen in other clients’ accounts, but reminded him the decision to sell was his on August 5th. [REDACTED] responded, ‘If you were a good advisor, you would have talked me out of selling everything. ‘\<char_lb_r>\, \<char_lb_r>\, On August 21st, [REDACTED] notified my RIA of his intent to sue, claiming:\<char_lb_r>\, \<char_lb_r>\, – He didn’t understand the strategy\<char_lb_r>\, – He was unaware of the loss potential\<char_lb_r>\, – He had expressed a desire to avoid stock market exposure\<char_lb_r>\, – As someone over 65, the strategy was unsuitable for him\<char_lb_r>\, \<char_lb_r>\, After extensive deliberation, I chose to settle rather than go to arbitration. My RIA agreed to cover $150K, equal to the fees received from the [REDACTED]. I was responsible for the remaining $1.35M. A settlement agreement was signed on October 9th, and funds were transferred to their attorney’s escrow account on October 20, 2024.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the advisor must use their knowledge of the first two elements to consider reasonably available investment option alternatives and come to the conclusion that there is a reasonable basis to believe that the recommendation or advice being provided is in the retail investor’s best interest.
In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Spencer has been in the securities industry for more than 30 years. Spencer has been registered as a Broker with Fidelity Brokerage Services LLC since 2012.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.