By Andre Raikhelson
“Selling Away” occurs when a broker solicits a customer for an investment that is outside of the typical transactions that a broker conducts as an employee of his brokerage firm. This can be problematic because a broker who is pushing an outside business activity, especially one that he is personally affiliated with, may not have the customer’s interest at the forefront of his mind. The expression goes that “every frog loves his own pond, regardless of how bad it smells.”
A successful selling away claim depends on whether or not the brokerage firm knew about the outside activity. Moreover, a selling away claim may be successful if the firm had adequate systems in place to monitor such activity, but those systems failed to be implemented. Therefore, it is no argument that the brokerage firm had the proper system in place to spot red flags, if this system was not implemented. A good example of this is the story of the sailor, his fishing net, and a wise old man. The story goes like this:
One day a sailor dropped a sturdy fishing net, one that caught many fish before, into the ocean. The fishing net was everything a fishing net should be. After some time, the sailor dragged the net up to find almost no fish. It turns out that the fishing net had a hole in it. He threw the fishing net down, blaming “those darn fish.” Upon his return to shore, a wise old man told the sailor, “Son, take it from an old man, a fishing net with a hole is no way to catch a fish.”
As this story suggests, it was the fisherman with his net that was to blame, not the fish. In cases of selling away, it is important that the brokerage firm (fisherman) does not let the fish (selling away by brokers and financial advisors) get away. If the brokerage firm has a net, but it is filled with holes, it is the brokerage firm, and not the broker who bears the blame.
Ultimately, if the broker has any outside business activities, he has a duty to report those business activities. These outside businesses, completely apart from the brokerage firm, can be found by doing a Broker Check on FINRA.org. These Broker Checks are free, and should be utilized often. To conduct a Broker Check, one only needs to go to FINRA.org, and type the name of the broker in the blue box on the right hand corner that says “Broker Check.”
Therefore, everyone should conduct a Broker Check, and everyone should be cautious when a broker starts talking about an outside investment.