Check it twice: Wealth management's naughty and nice list for 2023

December 24, 2023 10:00 AM

This year brought renewed war between Israel and Hamas, a devastating earthquake in Turkey and the downfall of some of the crypto world's most prominent kingpins.

But it also brought great advances in advancing technologies like electric vehicles and artificial intelligence, one of the strongest stock market rallies in years and signs that the economy may be headed for a soft landing after all.

Sometimes it's easy to let all the bad that happens in a year overshadow the good. As much as that can be said for global events, it's just as true for the smaller world of financial planning.

Lest the bad actors in wealth management take all the attention away from the good, we've drawn up a little list of some of our more encouraging stories from the past year. But as a reminder that not everything is exactly as we might wish, we've interlarded it with some of the more unfortunate incidents as well.

In keeping with the season, we're calling it our "naughty and nice" list. Scroll down to see who made it.

Sam Bankman-Fried

Stephanie Keith/Bloomberg

Naughty crypto barons

Sam Bankman-Fried of FTX is just the biggest name. This year similarity saw regulators fixing their sights on Changpeng Zhao, the founder and CEO of the crypto exchange Binance Holdings and Do Hyeong Kwon, the CEO of the digital asset firm Terraform Labs. The exchanges Coinbase and Kraken also came under scrutiny but without their executives being named in the complaints.

Behind many of these accusations is SEC Chairman Gary Gensler's firm belief that most cryptocurrencies and similar assets are properly categorized as securities. That means, according to his thinking, that they should be registered just as any other stock, bond or similar instruments traded on public markets.

Many in the crypto industry are inclined to resist this interpretation. The fight is likely only to intensify next year.

Lively volunteers having a pleasant day in the office

zinkevych - stock.adobe.com

Nice time for pro bono advisors

The Certified Financial Planner Board of Standards, which many in the industry see as setting the high mark for conduct expectations, approved a resolution in July encouraging the more than 96,000 planners who bear its mark to provide some of their services free of charge. It's long been recognized that some of the greatest need for financial planning comes from people who can least afford to pay for it.

Enter someone like Frances Goldman, founder of Frango Financial in Washington, D.C. Goldman is among the thousands of planners who have found a way to give their careers a little extra meaning by setting aside a few hours each month for pro bono financial planning. And people like Goldman are becoming less of an anomaly in the industry.

The CFP has found there was a 30% increase in the number of its certification holders who took on pro bono work from 2021 to 2022. In the latter year, 4,634 CFPs met the organization's recommendation of putting in 20 hours of pro bono work a year.

Sankt-Petersburg Russia November 11, 2017: Apple iPhone 7 on woo

Aleksei - stock.adobe.com

Naughtiness on social media

There are quite a few celebrities who made our naughty list this year. NBA Hall of Fame player Paul Pierce, actress Lindsay Lohan, boxer Jake Paul, rapper DeAndre Cortez Way (Soulja Boy) and pop singer Austin Mahone were just among the recognizable (at least to some people) names who found themselves crossways with regulators.

In those celebrities' cases, their alleged misdeed was promoting investments in crypto without revealing that they had received money in return for those endorsements. Paul had to pay $1.4 million to settle the charges against him.

But it wasn't only the famous who came in for scrutiny over their use of social media to promote investments. In December, the SEC brought charges against eight social media influencers it accused of a "pump and dump" scheme. The young men were alleged to have conspired to drive up the price of certain cheap "penny stocks" and then dump the shares at a high price before any of their followers could.

Nice results in combating elderly fraud

Elderly people make easy targets for scammers for two reasons: they tend to have a good deal of savings tucked away, and they are less likely to be cognitively sharp enough to detect devious schemes.

So one of the plagues of modern life continues to be fraudsters who take advantage of older clients. But financial planners have shown they can help.

A paper published in September by the Journal of Financial Economics looked at states that had adopted a North American Securities Administrators Association model act designed to bolster protections against elder fraud. Among the 36 that had approved the model act or something similar, the researchers found there was 15.4% drop in fraud cases.

True, there was a lot of room for improvement. In 2022, 88,262 victims over age 60 reported being defrauded. But planners are helping to move the industry in the right direction.

Very naughty actors with elderly fraud

Alas, even as the majority of planners were helping to rid the industry of elderly abuse, a few individual practitioners were providing some pretty ugly examples of it.

This year, a former Morgan Stanley vice president was accused of stealing $1.7 million from his elderly mother and mother-in-law. A "pillar" of the small community of Orcutt, California, came under suspicion of ingratiating herself with older women clients so she could defraud them of $2.25 million.

A former LPL advisor was alleged to have stolen nearly $3 million from an elderly couple and could become a suspect in the death of the wife. And an advisor was sentenced to as many as 15 years in prison for defrauding elderly clients and families of children with special needs.

Nice diversity

The planning industry remains predominantly white. But that's not for a lack of effort on the part of people who are seeking to bring new recruits of all colors, ethnicities, creeds and orientations. This year saw plenty of examples of groups and individuals trying to make the industry a little more comfortable for clients and advisors fitting any description.

Wall Street Bound, an organization founded about five years ago to bring more diversity to the wealth management and financial planning industries, held the first of what is to be an annual fundraising event in Midtown Manhattan. Prudential Financial formed a partnership with The American College of Financial Services, an online school for aspiring financial professionals, to bolster the industry's recruitment of Black advisors. And DFD Partners, a software firm for financial advisors managing assets owned by women and minority managers, began working with a nonprofit group called The Center of Innovation for Diversity, Equity and Inclusion in Finance to allow three investment firms to use DFD's systems for a year for no fee.

But it wasn't just organizations and large companies that were making a difference. Registered investment advisors and other smaller businesses also contributed.

A wealth manager at Bordeaux Wealth Advisors, a registered investment advisor based in Menlo Park, California, helped to start the firm's Asian Wealth Advisory unit, of which she's now the director. Two long-time advisors merged their practices to form the first Black-owned firm with more than $1 billion in assets under management. And Ballentine Partners, an RIA that specializes in serving families with $3.5 million or more in assets, has seen success recruiting through its DEI Steering Committee and DEI Task Force.

And events like the third annual Black Wealth Summit, a first-of-its-kind event for Latino advisors and the 17th Annual Conference of African American Financial Professionals both did their part to show the opportunities a diverse workforce can enjoy in the financial industry and the benefits client investors would reap from having one.

Naughty big dogs

As happens every year, some of the biggest companies on Wall Street and elsewhere found themselves in regulators' nets in 2023. One of the compliance sweeps to hit the industry was over firm representatives' misuse of messaging systems like WhatsApp to discuss business matters.

Federal law generally requires such messages to be recorded and stored in case they end up being needed in a future inquiry. But WhatsApp, Telegram and similar services are encrypted and otherwise designed to preserve privacy, often making it difficult to track their use.

Wells Fargo and eight other firms and their affiliates learned that the hard way in August when the Securities and Exchange Commission hit them with $289 million in total fines for failing to record their employees' "off channel" communications. That was followed the next month with $80 million in penalties on Baird, Interactive Brokers and other firms accused of similar violations.

The misuse of messaging systems likely garnered so much attention this past year in part because these cases involved a still-developing technology. Firms meanwhile showed that the tried-and-true methods of getting in trouble still worked.

Deutsche Bank agreed to pay $25 million to resolve allegations that it had misled investors about its environmental, social and governance, or ESG, investing practices and failed to have required anti-money laundering protections in place. Bank of America paid $24 million over allegations that it had failed to prevent two of its traders from running a "spoofing" scheme that manipulated the U.S. Treasury market.

Merrill had to pay $12 million to settle charges that it had failed to report suspected criminal activity involving withdrawals, forged or altered checks, identity theft, and phone or internet scams. And two Raymond James-affiliated brokerages agreed to pay nearly the same amount to resolve allegations that they had overcharged customers for hundreds of thousands of equities transactions over a five-year period.

Nice sporting chance

This year was also a recommitment to efforts to make sure professional athletes, artists and performers go about managing their money properly.

In the latest of these, UBS Group announced in December that it had joined the exclusive club of firms that have been selected to provide financial advice to members of the National Football League Players Association. It joins some good company. Already on the list were Goldman Sachs, Morgan Stanley, Alliance Bernstein and Bessemer Trust.

In August, Morgan Stanley Wealth Management's global sports and entertainment division announced it was working with former Arizona Cardinal star wide receiver Larry Fitzgerald on Money in the Making, a program meant to impart financial wisdom to young people in the sports and entertainment industries. And a special certification for financial advisors wanting to work with professional athletes — the Sports and Entertainment Accredited Wealth Management Advisor — was opened up to everyone in the industry who wants to try to obtain it. The mark, offered through Kaplan's College for Financial Planning, had previously been reserved for employees of Merrill Lynch Wealth Management.

And since virtually everyone likes sports and entertainment in some form, that's as nice a note to end on as any.