SEC says that JPM misled customers about broker pay
Chris Hamblin, Editor, London, 7 January 2016
The US Securities and Exchange Commission has made JP Morgan’s brokerage business pay $4 million to settle charges that it falsely stated on its private banking website and in marketing materials that advisors were paid "on our clients’ performance; no one is paid on commission."
An SEC investigation found that although JP Morgan Securities LLC (JPMS) did not pay commissions to registered representatives in its US private bank, their pay was not based on the performance of clients' investments. Advisors were instead paid salaries and discretionary bonuses in accordance with a number of other factors.
In announcing the existence of the fine, the director of the SEC's Enforcement Division was tongue-tied with excitement: “JPMS misled customers into believing their brokers had skin in the game and were being compensated based on the success of customer portfolios.” According to the court order that the SEC obtained to "settle an administrative proceeding":
- JPMS made its false and misleading statement about brokers' pay between 2009 and 2012.
- The mis-statement was made to current and prospective customers on JPMS’ private banking website and on another private banking website for its regional office in Tampa.
- Among the marketing materials that included the mis-statement were a marketing letter, a 'prospecting card' (whatever that is) and a 'pitch book' (ditto).
- JPMS employees identified the broker compensation statement as inaccurate on four occasions between March 2009 and February 2011. JPMS failed to correct things in every case.
- It was not until May 2012 – more than three years after it was first made – that JPMS corrected the mis-statement, and then only in some marketing materials.
Broker-dealers such as JPMS know that they can profit by claiming that their monetary interests are aligned with those of their customers. The SEC claims that JPMS misled customers in this regard, although the banking giant neither admits or denies its findings. The SEC’s order relates to breakages of section 17(a)(2) Securities Act 1933.
