‘Our Reputation Stands on Its Own’

Schwartz:  In the end your reputation is based on your body of work for 10 or 20 or 30 years, and fortunately, one thing usually doesn't do you in. Obviously, when you get in like AIG was at one time, or anything related to Medical Capital where you're in there every week for years, it's going to be ugly.

The single events, they're ugly, but you just walk on by. We had a rep — this was 15, 20 years ago — who was churning mutual-fund accounts. When we looked into it he was churning them at his prior broker-dealer. The total amount of money was relatively modest. While he was with our firm he had cost clients about $50,000.

That's modest in the context of even — forget Bernie Madoff, but a normal Ponzi scheme. We actually made this beautiful chart up of all the stuff [he had done] and even got some of the stuff from before he was with us. Fired him, sent it all to FINRA, and FINRA didn't take any action against him. I guess because it was too small.

It was so blatantly obvious. It was, like, these eight widows, boom, boom, boom, boom. [FINRA] didn't do anything. So he files a suit against us for defamation of character and unlawful termination and all that kind of stuff. After $40,000 in legal fees we paid him $25,000 to go away because it was going to be another $40,000 just to get it all to the end.

This was not a reputational issue, but reputational issues are also about your soul. You just feel like you've been dirtied by somebody saying that you're an evil firm, that you harmed his dying wife or 'you put so much stress on the family because you fired me.'

These things affect you on multiple levels. Sometimes you just have to stand up and walk away, and not fight that battle. You want to focus on making the world a better place, not just letting your ego get involved.

Dolber:  Too bad there wasn't a safe harbor, though, with the thing you were bringing up about the brokers that move from firm to firm. Firms don't often tell the other firm because they're worried about what they'll say, because they could get sued.

The one fraud that we had, that broker defrauded the firm he came from. Then he brought credentials to us that looked real but they weren't real. We never knew and nobody was telling us because there's no safe harbor. Firms seem to be very careful about saying something negative about an advisor for fear that they could get sued.

Schwartz:  We've been sued a couple of times about it, when you actually put down what's going on. We know there are certain firms I won't identify here that are being very careful about what they say about people.

So when we hear somebody coming quickly from that firm, even if they're a million-dollar producer, we generally won't take them because we know there's probably something else going on.

It's interesting, just like there's a tendency for juries to feel sorry for the 78-year-old man on a respirator and a wheelchair, the arbitrators are more willing to see the broker-dealer as the big evil corporation and the poor advisor as the one that was done wrong.

Anybody in the industry with a little background, even if they weren't with a broker-dealer, if you looked at that case, you'd go, "Of course the rep can't do that. That's just not right." But the cases don't always go that way because in many cases, it's a question of the deep pockets.

Everybody's comfortable taking money from an insurance company because they have an infinite amount of money. In the same way, to some degree, the price of success is that sometimes your reputation, your pocketbook or just your ego — you have to be able to walk away from some of these things.

David Stringer, Prosepera Financial, Division I:  Let me squeeze a comment in here. One of the things we're very proactive on the front end about is who we let in the house, so fortunately, we've not had this experience.

But to your point, Eric, when we find someone in the interview process and they have nothing kind to say about their former employers, that to me is somebody who is somewhere down the line going to turn on us.

On the back side, we would take the high road. This is a very personal business to us. I've dedicated 25 years of my life to this business, so it would be very personal. [Privately], we'd probably scream and holler and wring our hands and be very angry about it, but publicly we'd take the high road.

If we've had some problem that they're exploiting out in the press and it was truly our problem, we'd deal with it internally. We would talk with our advisor base and own it. We've done our part. We try to live by these core values that we establish and make an example of ourselves about living by those core values.