Buying or Selling a Financial Advisor’s Book of Business: Legal and Practical Considerations

Buying or selling a financial advisor’s “book of business” may sound straightforward: determine revenue, apply a valuation method, negotiate a price and complete the transfer.

In practice, these transactions can be considerably more complicated.

An advisory book is built around client relationships. Those relationships may be affected by employment agreements, restrictive covenants, confidentiality obligations, regulatory requirements, transition arrangements and, most importantly, decisions made by the clients themselves.

Before negotiating price, the parties should ask: What exactly is being bought?

Purchasing an established advisory practice is different from paying another firm to release or modify contractual restrictions so an advisor can compete, communicate with clients or serve clients who independently choose to follow the advisor. That distinction can affect nearly every aspect of the transaction.

What Does It Mean to Buy a Financial Advisor’s Book of Business?

Financial advisory practices are commonly valued by reference to assets under management (“AUM”), recurring revenue, earnings or related multiples. Those measurements are useful, but they can create the impression that a book is a fixed asset that transfers intact from seller to buyer. Usually, it is not.

The economic value of an advisory practice depends on clients continuing relationships they generally have the ability to change. A purchaser should therefore look beyond headline AUM and revenue figures. Important considerations include recurring revenue quality, profitability, client concentration, demographics, expected retention, the strength of advisor-client relationships, services provided, anticipated withdrawals and the seller’s ability to assist with the transition.

Are You Buying a Business—or Buying Contractual Freedom?

A conventional practice acquisition may transfer goodwill, contractual rights, intellectual property, infrastructure, personnel, business systems and transition assistance.

Other transactions arise when an advisor wants to leave an existing firm while remaining subject to a noncompetition agreement, non-solicitation provision or other restriction. In that setting, a negotiated payment may principally purchase certainty and contractual freedom, rather than an operating business.

Those rights can have substantial value, but they are not necessarily equivalent to the enterprise value of an entire book. A business generating recurring revenue indefinitely and a restriction expiring after a limited period are fundamentally different economic assets.

Can Clients Be “Sold” With a Financial Advisor’s Book?

Not in the same way as inventory or equipment. Clients participate in the transition. A client may remain with the existing firm, follow the departing advisor, move to the acquiring firm or choose someone else.

The agreement should distinguish between an advisor affirmatively soliciting a client and a client independently deciding to continue working with that advisor. That distinction can be especially important when restrictive covenants apply.

Financial Advisor Non-competes and Non-solicitation Agreements Are Not the Same Thing

A noncompetition provision may prohibit an advisor from engaging in specified competitive activities after leaving a firm. A non-solicitation provision may permit competition generally while restricting solicitation of particular clients or employees. A confidentiality provision may restrict the use or disclosure of protected information regardless of whether the advisor competes or solicits anyone.

Each provision should be analyzed separately. Enforceability may depend on governing state law, the language, duration, geographic scope, clients covered, the advisor’s relationships with those clients and the legitimate interests the restriction protects.

Missouri Law and Financial Advisor Restrictive Covenants

Missouri Revised Statutes § 431.202 addresses certain covenants involving employees and recognizes customer contacts, relationships, goodwill and loyalty as potentially protectable interests. For certain covered employee non-solicitation agreements, a post-employment duration of one year or less receives a conclusive presumption of reasonableness as to duration. The statute does not, however, establish that every customer restriction is enforceable.

The statute also states that it does not create or determine the validity or enforceability of ordinary employer-employee covenants not to compete.

In Whelan Security Co. v. Kennebrew, 379 S.W.3d 835 (Mo. banc 2012), the Missouri Supreme Court recognized legitimate interests in customer contacts and goodwill while rejecting restrictions extending beyond what was reasonably necessary.

A one-year non-solicitation provision and a one-year noncompetition provision are not automatically equivalent. The actual agreement must be reviewed.

Geographic and Activity Restrictions Matter

Duration is only one component of a restrictive covenant. A one-year restriction limited to a reasonably defined territory may differ substantially from a restriction with no meaningful geographic limitation that bars nearly any client-facing, sales, managerial or advisory work for a competing business.

Scope affects both enforceability and negotiating leverage.

What Happens to Confidential Client Information When an Advisor Leaves?

An advisor may have strong arguments against a noncompete while still owing duties to protect legitimate confidential information. Client lists, internal records, proprietary systems, pricing information, business plans and other protected materials should not be removed, copied, used or disclosed simply because the advisor believes another restriction is unenforceable.

A transition should establish how information needed for a new advisory relationship will be obtained lawfully, subject to applicable privacy, regulatory and recordkeeping requirements.

Is Announcing an Advisor’s Move the Same as Soliciting Clients?

Not necessarily. Courts addressing financial-services transitions have sometimes distinguished between a communication announcing a new affiliation and one affirmatively requesting or encouraging a client to transfer business.

The distinction depends on the communication, agreement, governing law and surrounding facts. Its substance, audience, timing and method matter.

FINRA Requirements When a Registered Representative Changes Firms

FINRA Rule 2273 applies in specified circumstances when a registered representative is recruited by another FINRA member firm and former customers are individually contacted about transferring assets to the new firm. In those circumstances, the rule generally requires a FINRA-created educational communication.

A private transition agreement does not eliminate regulatory obligations. Compliance should be built into the transition before the commercial agreement is signed.

Valuing the Transaction

There is no universal formula. Recurring-revenue multiples and earnings-based approaches can provide useful benchmarks in a genuine acquisition, but the analysis should also consider profitability, client concentration, expected retention, transition assistance and durability of revenue.

A restrictive-covenant buyout presents a different question. The parties may need to consider remaining duration, likely enforceability, litigation and injunction risk, rights being released and the value of immediate certainty.

The value of a transferable advisory practice and the value of a release from a disputed, time-limited restriction are not necessarily the same thing.

Contingent Consideration

Where future client retention is uncertain, the parties may allocate some risk through contingent consideration based on revenue actually received from identified transitioning clients during an agreed period.

Any earn-out should define qualifying clients, revenue, the measurement period, treatment of new assets and withdrawals, deductions, reporting rights, payment dates, terminated relationships and any payment cap.

What Should a Financial Advisor Buyout or Transition Agreement Cover?

Depending on the transaction, the agreement should address restrictive covenants being released or modified; clients who may be contacted; unsolicited client communications; the advisor’s ability to accept and service transferring clients; confidentiality and return of records; transition communications; transfer procedures; regulatory disclosures; post-departure fees; compensation; bonuses and clawbacks; promissory notes; expenses; employee non-solicitation; mutual releases; pending claims; injunctive remedies; tolling; non-disparagement; and procedures for future disputes.

If substantial money is being paid for contractual peace, the agreement should provide meaningful contractual peace.

Why Injunction Risk Matters

A departing advisor may have strong arguments that a restriction is overbroad or unenforceable, but that does not eliminate short-term litigation risk. A former firm may seek temporary or preliminary injunctive relief soon after departure.

Settlement economics therefore involve more than predicting the ultimate winner. Avoiding months of uncertainty, legal fees and disruption can itself have significant value.

Negotiating Without Conceding Enforceability

A party does not have to choose between challenging a restrictive covenant and negotiating a resolution. Settlement discussions can preserve positions concerning enforceability, breach, damages and defenses while the parties explore a commercial solution.

The useful question is often: What is certainty worth to each side?

Damages Should Not Automatically Equal the Gross Value of Lost Accounts

If a firm claims that prohibited solicitation caused clients to leave, the loss is not necessarily equal to the assets those clients held or to gross advisory revenue.

The measure of damages depends on governing law, the claim asserted, the contract and the facts. A central factual question is whether the client would have remained with the former firm absent the alleged violation. The claimant generally must establish causation and a non-speculative basis for the amount sought.

Due Diligence Before Buying a Financial Advisor’s Book

Financial due diligence should address historical revenue, margins, fee schedules, concentration, AUM and anticipated withdrawals.

Client due diligence should examine demographics, retention history, service expectations, relationship duration and dependence on the selling advisor.

Legal due diligence should include client agreements, employment agreements, restrictive covenants, confidentiality provisions, ownership rights, disputes and regulatory obligations.

Operational due diligence should address custody, technology, staffing, recordkeeping, compliance systems and account-transition mechanics.

Selling a Financial Advisory Practice Requires Preparation Too

A seller should understand what is transferable before promising what the purchaser will receive. The seller should identify contractual obligations affecting the transition, permissible communications, available assistance and responsible representations concerning client retention.

The Best Agreement Plans for the First Day After Closing

The parties should know who will contact clients, when communications will occur, what may be said, how documentation will be handled, how regulatory disclosures will be provided, how client information will be obtained and what happens when a client makes an unexpected decision.

A good transition agreement does not merely resolve yesterday’s dispute. It provides instructions for tomorrow morning.

Frequently Asked Questions About Financial Advisor Books of Business

Can a financial advisor take clients when leaving a firm?
There is no universal answer. The analysis depends on agreements, state law, regulatory obligations, conduct and whether the client independently elects to follow the advisor.

Is a one-year financial advisor noncompete enforceable in Missouri?
Duration alone does not answer the question. Missouri distinguishes between ordinary noncompetition agreements and certain non-solicitation agreements. Scope, protected interests and contractual language matter.

Can a former client contact a financial advisor after the advisor changes firms?
Independent client contact may present different issues from affirmative solicitation, but confidentiality, privacy, regulatory and onboarding requirements still matter.

How much is a financial advisor’s book of business worth?
There is no universal multiple. Recurring revenue, earnings, client concentration, demographics, retention expectations, profitability and transition arrangements can all affect value.

Is buying out a noncompete the same as buying the advisor’s book?
Not necessarily. Purchasing an operating practice may involve assets, goodwill and continuing revenue. Paying for release from a time-limited restriction may principally purchase contractual freedom and certainty.

Can the purchase price depend upon clients actually transferring?
Yes. Some transactions use contingent consideration tied to post-closing revenue or client retention. The measurement provisions should be precise.

Can a financial advisor announce that he or she has joined a new firm?
An announcement may differ legally from solicitation, but content, method, agreement, state law and securities regulations matter.

What is the biggest mistake in buying a financial advisor’s book?
A major mistake is assuming historical revenue guarantees future revenue. Client retention, contractual restrictions, transition mechanics and regulatory obligations can materially affect what the buyer receives.

The Central Question

What are you actually paying for?

Are you buying an operating business, goodwill, recurring revenue, transition assistance, contractual rights, a release from a noncompete, permission concerning particular clients or certainty that neither side will spend the next year litigating?

Often, the answer is a combination. Each component may have a different economic value and legal significance.

Conclusion

Buying or selling a financial advisor’s book of business is not merely a valuation exercise. It is a transaction involving contracts, regulation, confidential information, professional relationships and client choice.

The parties should understand what is actually being transferred, what remains subject to restriction, what obligations survive the transaction and how clients will be treated during the transition. Where restrictive covenants are involved, the parties should separately evaluate noncompetition, non-solicitation and confidentiality provisions rather than treating them as a single restriction.

Most importantly, the agreement should reflect the transaction the parties are actually making.

Purchasing an advisory business is not necessarily the same transaction as purchasing freedom from a restrictive covenant.

A carefully structured agreement can define that difference, allocate client-retention risk, protect legitimate confidential information, address regulatory requirements, resolve existing disputes and establish a workable transition before clients are ever contacted.

The best transactions therefore do more than establish a price. They establish who may do what, with whom, when, and under what conditions after the agreement is signed. That clarity can be as important as the economics themselves.

About the Author

David B. Cosgrove is an attorney with experience advising businesses, professionals and financial-services participants on contracts, restrictive covenants, business transitions, disputes and related legal matters. His work includes analyzing non-competition, non-solicitation and confidentiality provisions; negotiating transition and separation agreements; and helping clients evaluate the legal and practical risks associated with buying, selling or transitioning an advisory practice.

Disclaimer

This article is provided for general informational and educational purposes only and does not constitute legal, tax, investment or regulatory advice. It does not create an attorney-client relationship. Laws and regulatory requirements vary by jurisdiction and depend on the particular facts and agreements involved. Readers should consult qualified legal and other professional advisers concerning their specific circumstances.

Plaintiff Escapes Arbitration

            In Michael Waller v. Commerce Bank, et al., Commerce Bank appealed the interlocutory order of the Circuit Court of Jackson County, Missouri (“circuit court”), denying Commerce Bank’s motion to compel arbitration of Mr. Michael Waller’s (“Waller”) claims under the Missouri Human Rights Act (“MHRA”).  Because there was an unambiguous exclusion clause within the arbitration provision that was applicable to the undisputed facts of the underlying lawsuit relevant to this appeal, the Court of Appeals affirmed the circuit court’s denial of Commerce Bank’s motion to arbitrate.

[Waller] brought this action for Race Discrimination in Public Accommodation and Retaliation in Public Accommodation under the Missouri Human Rights Act after his request to open two business accounts was denied after several visits to two separate locations of Defendant Commerce Bank.  [Waller] claims he was denied the opportunity to open the business accounts because he is Black.

[Commerce Bank] filed a Motion alleging that “[Waller] agreed to the terms of a Deposit Agreement when opening his personal account with Commerce [Bank], and the Deposit Agreement require[d] Waller to arbitrate all claims related to or concerning his relationship with Commerce [Bank].”  However, the Dispute Resolution – Arbitration section of the Deposit Agreement contained a provision which stated “[t]his agreement to arbitrate shall not apply to any Claims or other disputes relating to business accounts or other non-personal accounts as such accounts are defined in Section II.I of this Agreement.  According to the Court, claim was related exclusively to [Waller’s] attempts to open business accounts.

On appeal, Commerce Bank contended the circuit court erred in denying its motion to compel arbitration.

According to the Court of Appeals “Motions to compel arbitration generally present two central issues:  (1) whether the parties to the lawsuit entered into an enforceable arbitration agreement; and (2) whether the scope of that agreement encompasses the disputes raised in the lawsuit.”  Maune v. Raichle, 721 S.W.3d 865, 869 (Mo. banc 2025).  “The parties, however, may agree to arbitrate either or both of these threshold issues by including in the arbitration agreement a delegation provision broad enough to encompass them.”  Id. (citing Brown v. GoJet Airlines, LLC, 677 S.W.3d 514, 521 (Mo. banc 2023)).  Here, neither party argues that either of these threshold issues have been delegated to arbitration and the arbitration agreement makes clear that those issues are not delegated to arbitration.

“Determining the scope of an arbitration agreement requires application of ‘the usual rules of state contract law and canons of contract interpretation’ in order to ‘ascertain the intent of the parties through the plain and ordinary meaning of the contract terms and give effect to that intent.’”  Nelson Trucking, LLC v. K&M Translogic, LLC, 696 S.W.3d 407, 417 (Mo. App. W.D. 2024) (emphasis added) (quoting Mackey, 640 S.W.3d at 798); see also Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 776 & n.5 (Mo. banc 2005) (collecting cases supporting the proposition that, “in determining whether the parties have entered into a valid agreement to arbitrate, the usual rules of state contract law and canons of contract interpretation apply”).

Here, the relevant provisions of the arbitration agreement that the parties entered into when Waller opened a personal banking account with Commerce Bank are plain, ordinary, and unambiguous terms.

The Court of Appeals agreed with Commerce Bank that the arbitration agreement defines “Claim” to have “the broadest possible meaning,” but noted that the same arbitration provision very plainly excludes from the definition of “Claim” any dispute “relating to business accounts.”  And, in this litigation, the entire dispute revolves around discrimination claims that “relate” to Waller’s attempt to open a “business account” with Commerce Bank and Commerce Bank’s refusal to open such business account, allegedly for a discriminatory reason.

In sum, because Waller’s claims related solely to his attempts to open business accounts with Commerce Bank, the claims brought in Waller’s petition fell within the scope of the exception to arbitration clause.  Thus, the circuit court did not err in denying Commerce Bank’s motion to compel arbitration.

ARE YOU LOOKING FOR A ST. LOUIS BASED SECURITIES FRAUD LAW FIRM?

If you are, look no further.  Indeed, if you use Google for your law firm search you will probably find about 10 law firms that actually have little or nothing to do with St. Louis.  Are you getting the best firm for your needs, or the firm that paid to play on the internet?

Cosgrove Simpson began representing investors and members of the industry in 2006.  Some cases have gone to court, while others have gone to an arbitration forum such as FINRA, JAMS, or AAA.  If you are seeking experienced counsel regarding claims of fraud or negligence related to an investment, please call and ask for one of our St. Louis attorneys. 314-563-2490

FINRA Discloses Its September 2025 Disciplinary and Other Actions

The self-regulatory body that monitors the conduct of financial professionals just issued its results for last month. The following are just a sampling of the summaries it provided:

Greenbird Capital, LLC (CRD #306692, Boca Raton, Florida)  

July 24, 2025 - An AWC was issued in which the firm was censured and fined $50,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it lacked a system reasonably designed to supervise solicitations of private placement offerings. The findings stated that the firm’s written procedures did not prohibit registered representatives from engaging in a general solicitation of such offerings or provide any guidance on what constituted a pre-existing, substantive relationship. In addition, the firm did not have a system to reasonably monitor and document when the firm had established a substantive relationship with a prospective investor, or to confirm, before a prospective investor was solicited for an offering, that the firm had such a relationship with that investor. In connection with the offerings, registered representatives made hundreds of thousands of calls to prospective investors without a reasonable system to ensure that the firm established substantive relationships with those individuals prior to soliciting the individual for a specific investment. The findings also stated that the firm failed to establish, maintain, and enforce a system reasonably designed to achieve compliance with FINRA’s telemarketing rules. The firm had no system or procedure to monitor outbound calls made by the firm’s registered representatives for number on the national do-not-call list. In addition, although a principal of the firm occasionally checked whether registered representatives called customers during the times permitted by FINRA Rule 3230, the firm did not specify when, or how often, such reviews took place. Subsequently, the firm implemented the use of a pre-existing relationship form, revised its WSPs to include language addressing general solicitation and the pre-existing relationship form, and stopped engaging in cold calling. (FINRA Case #2023077022001)

Noble Capital Markets, Inc. (CRD #15768, Boca Raton, Florida)

            July 29, 2025 – An AWC was issued in which the firm was censured and fined $45,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with provisions of the federal securities laws related to the general solicitation of private placement offerings. The findings stated that the firm’s WSPs failed to address Rule 506(b) of Regulation D of the Securities Act of 1933, and incorrectly permitted the general solicitation of all private placements sold in reliance on Rule 506(b) as long as the prospective investors met certain suitability qualifications. The firm’s WSPs also failed to provide guidance on the need to establish a pre-existing, substantive relationship with prospective investors or address how designated supervisors should ensure the firm had established such a relationship. In addition, the firm also had no process to check whether private placement investors had pre-existing, substantive relationships with it even in the case of investors who first opened accounts at the firm after its participation in the offering. The findings also stated that the firm failed to reasonably supervise a registered representative who, in connection with two private offerings, cold-called more than 40 prospective investors who did not have substantive relationships with the firm prior to its participation in the offerings. Seven of the investors invested a total of $775,000 in one of the private placement offerings. The firm later revised its WSPs to provide updated guidance to the firm’s registered representatives and supervisors on the requirements of Regulation D. (FINRA Case #2020065533402)

Eric Anthony Dupre (CRD #2174456, San Antonio, Texas)

            July 17, 2025 – An AWC was issued in which Dupre was barred from association with any FINRA member in al capacities. Without admitting or denying the findings, Dupre consented to the sanction and to the entry of findings that he borrowed at least $2,236,000 from two customers without providing prior notice to, or obtaining written approval from, his member firm. The findings stated that Dupre borrowed $65,000 from a married couple, who were his customers, which Dupre repaid. Dupre also borrowed at least $2,171,000 through a series of loans from a senior customer. Dupre told the senior customer that he would pay back the principal of the loan plus an additional amount. Dupre needed the loans because he was experiencing financial difficulties. To loan a significant portion of the funds to Dupre, the senior customer borrowed funds on margin from his account, which he transferred to a personal bank account before loaning to Dupre. As a result, the senior customer incurred substantial margin debt. Given Dupre’s financial circumstances at the time he borrowed the money from the customer, he did not have a reasonable expectation of repaying the loans, and to date, he has not repaid any portion of the funds loaned to him by the senior customer. (FINRA Case #2023079280501)

Calvin Lee Gray (CRD #7575351, Salem, Missouri)

            July 21, 2025 – An OHO decision became final in which Gray was barred from associating with any FINRA member in all capacities for failing to produce information and documents requested by FINRA during its investigation. The sanctions were based on the findings that Gray’s member firm informed FINRA that he had been indicted in June 2024 in the United States District Court for the Eastern District of Missouri for conspiracy to commit bank fraud, fraud in connection with identification documents, aggravated identity theft, and other chargers. The findings stated that the indictment alleged that, using account information that he stole from the firm, Gray obtained credit and debit cards that he used to make fraudulent purchases and transfer money to his control. FINRA’s investigation included trying to determine whether Gray had committed fraud or had engaged in identity theft since August 27, 2024, in a county jail in Salem, Missouri. On April 21, 2025, Gray pled guilty to the criminal charges and is scheduled to be sentenced on July 29, 2025. (FINRA Case #2024083063101) 

Donald Franklin Spivey (CRD #847360, Camden, South Carolina)

            July 21, 2025 – An AWC was issued in which Spivey was barred from association with any FINRA member in all capacities. Without admitting or denying the findings, Spivey consented to the sanction and to the entry of findings that he refused to appear for on-the-record testimony requested by FINRA in connection with its investigation into whether certain recommendations were suitable for or in the best interests of retail customers. The findings stated that Spivey initially cooperated with FINRA’s investigation but ceased doing so. (FINRA Case #2023078794801)

Meredith Archer Webber (CRD #2435263, Cobleskill, New York)

            July 28, 2025 – An Order Accepting Offer of Settlement was issued in which Webber was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Webber consented to the sanction and to the entry of findings that she failed to provide documents and information or appear for on-the-record testimony requested by FINRA as part of its investigation into whether she misappropriated funds from two elderly customers. The findings stated that the information and documents and on-the-record testimony requested by FINRA were material to its investigation because they directly related to whether Webber misappropriated funds and were necessary for FINRA to complete its investigation. Webber’s failure to provide the requested documents and information or provide testimony impeded FINRA’s investigation into her potential misconduct. (FINRA Case #2024082788802)

Devin Lamarr Wicker (CRD #4228250, New York, New York)

            July 28, 2025 – The U.S. Court of Appeals for the District of Columbia Circuit dismissal of Wicker’s appeal of an SEC decision became final. Wicker was barred from association with any FINRA member in all capacities and ordered to pay $50,000, plus interest, in restitution to a customer. The SEC had sustained the findings and sanctions imposed by the National Adjudicatory Counsel (NAC). The sanctions were based on the findings that Wicker converted a customer’s funds. The findings stated that the customer hired Wicker’s member firm to serve as the underwriter for its anticipated public offering and transferred $50,000 to the firm for the sole purpose of paying a retainer to a law firm, but Wicker used the funds for other purposes. Wicker never used these or any other funds to pay the law firm, and he never returned the funds to the customer, even though he received at least seven written requests from the customer and the law firm to do so. Instead, after the customer wired the $50,000 to the firm’s bank account, essentially all of that account’s funds were used to pay the firm’s other expenses, as well as to transfer approximately $440,500 into Wicker’s personal bank account. Wicker controlled the firm’s bank account into which the retainer was wired, and he authorized withdrawals and payments from the account for other purposes, including substantial payments to himself. To date, Wicker has not repaid the customer or sent the money to the law firm. (FINRA Case #2016052104101) 

Brian Richard Baine (CRD #1355980, Rye, New York)

            July 1, 2025 – An AWC was issued in which Baine was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for three months. Without admitting or denying the findings, Baine consented to the sanctions and to the entry of findings that he signed or caused a third party to sign non-securities customers’ signatures, including senior customers, on insurance-related documents without the customers’ permission. The findings stated that Baine did so to expedite the insurance application process and not in furtherance of other misconduct. The underlying transactions were authorized and none of the customers complained. The suspension is in effect from July 7, 2025, through October 6, 2025. (FINRA CASE #2023080198401)

Michael Ciro Colletti (CRD #4577898)

            July 10, 2025 – Colletti appealed a NAC decision to the SEC. The NAC affirmed the findings and sanctions imposed by the OHO. Colletti was fined $10, 000, suspended from association with any FINRA member in all capacities for eight months, ordered to pay $5,417, plus interest, in restitution to a customer, and required to requalify by examination as a General Securities Representative before again serving in that capacity. The sanctions were based on the findings that Colletti executed unauthorized trades in the customer’s account and engaged in quantitatively unsuitable trading. The findings stated that Colletti selected the security that was traded and determined the volume and frequency of the trading in the customer’s account. As a result, Colletti exercised de facto control over the account. In addition, Colletti’s trading was inconsistent with the customer’s investment objectives and investment profile. The customer was in his 60s at the time he opened his account with Colletti, nearing retirement, his account was an individual retirement account (IRA), and he listed his risk tolerance as “moderate” and his objectives as income and growth. Colletti engaged in a pattern in the account of buying a stock, holding it a short time, and selling it to buy another stock, which was also sold after a short time, until the customer closed his account. Colletti’s trading resulted in losses of $5,417. For these traders, Colletti charged $5,081 in commissions. The sanctions are not in effect pending review. (FINRA Case #2019061942901)

Daniel Michael Roper (CRD #6188279, Omaha, Nebraska)

            July 17, 2025 – An AWC was issued in which Roper was assessed a deferred fine of $15,000, suspended from association with any FINRA member in all capacities for two years, ordered to pay deferred disgorgement of unlawful profits in the amount of $80,747, plus interest, and required to requalify by examination as a General Securities Representative prior to associating with any FINRA member. Without admitting or denying the findings, Roper consented to the sanctions and to the entry of findings that he entered more than 14,000 equity trades and 6,300 options trades in his customer’s self-directed retail account for a share of the customer’s profits. The findings stated that Roper did not disclose to his member firm that he and the customer had entered into an oral profit-sharing agreement related to the trading, and the firm did not provide authorization to him to share in the profits in the customer’s account. Rather, Roper took numerous steps to conceal his conduct from his firm. In total, Roper received $80,747 in profit-sharing payments from the customer. The findings also stated that Roper exercised discretion without prior written authorization in connection with the equity and options trades in the account of the customer with whom Roper had a profit-sharing agreement. The customer orally authorized Roper to exercise discretion in his account, but never provided him with prior written authorization to exercise such authority, and his firm never accepted the customer’s account as discretionary. In addition, Roper attested in his firm’s annual compliance questionnaires that his disclosures were complete and account maintained with the firm over which he exercised discretion. The findings also included that Roper exchanged thousands of text message and emails with the customer with whom he had a profit-sharing agreement using his personal mobile device. These messages and emails included, among other things, communications about account performance information, the trades that Roper entered in the customer’s account, and profit-sharing payments that the customer made to Roper. Roper did not provide his firm copies of the text messages or personal emails, which caused the firm to maintain incomplete records of business communications. The suspension is in effect from July 21, 2025, through July 20, 2027. (FINRA Case #2023079598001)

Chad Michael Rogers (CRD #4029698, Tuttle, Oklahoma)

            July 22, 2025 – An AWC was issued in which Rogers was assessed a deferred fine of $5,000 and suspended from association with any FINRA member in all capacities for 45 days. Without admitting or denying the findings, Rogers consented to the sanctions and to the entry of findings that he impersonated customers during phone calls to his prior member firm. The findings stated that Rogers impersonated the customers to facilitate the transfer of their accounts to his employing member firm, or, in some instances, to transfer funds to the customers’ bank accounts. Although the customers consented to transferring their accounts or funds, none of them gave Rogers permission to impersonate them during these calls. The suspension is in effect from August 4, 2025, through September 17, 2025. (FINRA Case #2023079833901)

Andrew Steven Mack (CRD #5932062, New York, New York)

            July 23, 2025 – An AWC was issued in which Mack was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for three months. Without admitting or denying the findings, Mack consented to the sanctions and to the entry of findings that he exercised discretion without written authorization in connection with trades in customer accounts. The findings stated that although the customers understood that Mack was conducting trading in their accounts, none had given him prior written authorization and his member firm had not accepted the accounts as discretionary. For six months during the relevant period, Mack was on a heightened supervision plan that prohibited his exercise of discretion, yet he placed discretionary trades without written authorization in customer accounts during that time. Furthermore, Mack inaccurately stated that he did not exercise discretion in customer accounts on three of the firm’s annual compliance questionnaires. The suspension is in effect from August 4, 2025, through November 3, 2025. (FINRA Case #2023077059101)

Charles Scott Burford Sr. (CRD #1658201, Dallas, Texas)

            July 28, 2025 – Burford appealed an SEC decision to the U.S. Court of Appeals for the Fifth Circuit. The SEC sustained the findings and sanctions imposed by the NAC. Burford was fined $10,000 and suspended from association with any FINRA member in all capacities for six months. The sanctions were based on the findings that Burford executed unauthorized trades in, and facilitated unauthorized withdrawals from, his deceased customer’s account. The findings stated that Burford did not submit the customer’s death certificate to his member firm until over 14 months after his death. Further, Burford executed the trades and facilitated the withdrawals in the account on instructions from the customer’s widow. Burford did not submit the death certificate to the firm until it was necessary to permit the customer’s widow, who was named beneficiary, to take the required minimum distribution from the customer’s beneficiary IRA by year’s end. When Burford submitted the death certificate for this purpose, he failed to inform the firm that the customer’s account remained open and active. Burford executed additional trades and withdrawals in the account. In all, at the widow’s request, Burford executed nine sales transactions totaling nearly $130,000 and facilitated eight withdrawals totaling nearly $85,000. After learning that the customer’s daughter planned to contest the customer’s will, Buford asked the firm to freeze the customer’s account. Even then, Burford failed to inform the firm that he had improperly effected any transactions in the customer’s account until the daughter’s attorney informed Burford that she had challenged the will and warned him that the firm might be liable for the distributions from the customer’s account. The sanctions are not in effect pending review (FINRA Case #2019064656601)

Venugopal Ramakrishnappa Reddy (CRD #5125813)

            July 29, 2025 – An AWC was issued in which Reddy was assessed a deferred fine or $5,000 and suspended from association with any FINRA member in all capacities for six months. Without admitting or denying the findings, Reddy consented to the sanctions and to the entry of findings that he participated in private securities transactions without providing prior notice to his member firm. The findings stated that Reddy and a partner formed an investment fund and several affiliated entities for the purpose of raising capital to invest in early-stage technology companies. Reddy timely disclosed his role as co-owner and co-manager of these entities to his firm. Among other things, Reddy disclosed that the entities would engage in “investment related” activities, including offering interests in the fund to investors, and that he would be entitled to receive a share of carried interest under certain circumstances. Reddy also provided draft offering materials to the firm. Ultimately, the firm approved Reddy’s involvement in these entities as outside business activities (OBAs). 36 accredited investors committed a total of $9.2 million in capital to the fund and affiliated entities. Reddy participated in transactions involving nine of these customers and approximately $5 million in capital by helping to solicit investments and by executing subscription agreements on behalf of the fund and affiliated entities. To date, Reddy has not received any carried interest. Once the firm became aware of the transactions, its chief executive officer signed forms documenting the firm’s approval of them. The suspension is in effect from August 4, 2025, through February 3, 2026. (FINRA Case #2022076766202)

            If you are an aggrieved investor or a professional dealing with FINRA, we are here to provide you with experience-based assistance. Please give one of our attorneys a call today.

COURT OF APPEALS REFUSES TO ENFORCE ARBITRATION PROVISION

 

           Earlier this year, the Missouri Court of Appeals affirmed a trial court’s refusal to enforce an arbitration provision within an operating agreement. Now we all know that arbitration agreements are difficult to circumvent, so what happened in this case?

            The case is Disruption 8, LLC v. Vertical Enterprises, LLC. To keep it simple, the parties executed three contracts, and only one of them contained an agreement to arbitrate. The plaintiff alleged that the defendant breached one of the three contracts. But the contract breached did not contain an arbitration provision.

            The Court of Appeals set forth a lot of great law for anyone litigating the enforceability of an arbitration provision, stating in part:

“When faced with a motion to compel arbitration, the motion court must determine whether a valid arbitration agreement exists and, if so, whether the specific dispute falls within the scope of the arbitration agreement… Whether or not a dispute is covered by an arbitration agreement is a question of law for the courts… Arbitration agreements are tested through a lens of ordinary state-law principles that govern contracts[.]…[a] party cannot be compelled to arbitration unless the party has agreed to do so… Policies favoring arbitration are ‘not enough, standing alone, to extend an arbitration agreement beyond its intended scope because arbitration is a matter of contract’…Therefore, “any curtailment of the right to a jury trial, which is what arbitration agreements do, “should be scrutinized with utmost care.”… Thus, to be a valid waiver of a party’s right to a jury trial, an arbitration agreement must be “clear, unambiguous, and conspicuous.”…When the contract at issue contains no express arbitration clause, arbitration may be compelled only if the circumstances demonstrate a clear agreement to arbitrate… “[m]ere reference” to another contract “is insufficient to establish that [a party] bound itself to the arbitration provision of the [other] contract”… If the parties contemporaneously execute documents “relating to the same subject,” and one of the documents contains an arbitration clause, arbitration may be compelled in a dispute involving a related document “unless ‘the realities of the situation’ indicate that the parties did not so intend.”… Contracts do not relate to the same subject, however, when they cover “distinct aspects of the parties’ transaction.” … When the claim is “independent of the contract terms [in the contract requiring arbitration] and does not require reference to the underlying contract, arbitration is not required.”

[Citations omitted]

Applying these principles, the Court concluded that the lawsuit alleging a breach of a loan agreement did not implicate the arbitration agreement in the parties’ operating agreement.

            Cosgrove Simpson is frequently confronted with motions to compel arbitration, particularly when dealing with entities such as registered investment advisers. A party’s right to have their matter heard by a jury is obviously critical, so be sure to carefully evaluate if and how to challenge any effort to thwart that right.

Are You A Financial Advisor With A Wrongful Termination or Defamation Claim?

           Advisors terminated by their broker-dealer should immediately retain experienced legal counsel.

The broker-dealer has 30 days after termination to file the mandatory U-5.  Legal counsel can help you negotiate fair and accurate language for this critical and potentially public disclosure.  Moreover, how the U-5 is completed above and beyond the narrative “reason for termination” can be pivotal.

          Many advisors fail to appreciate that, for the most part, their broker-dealer can terminate them without cause.  But there are contractual and public policy exceptions to this general rule that must be evaluated.  Cosgrove Law Group has extensive experience working with financial advisors who have been terminated, including not just U-5 issues, but also issues such as promissory notes and other compensation matters.

It’s 10 O’clock – Do You Know Who Your Beneficiaries Are?

           Having a will is an important step in directing what is to happen to your assets when you die. Ensuring all of your accounts have current beneficiary information properly submitted is also key. Financial accounts and insurance policies provide the option to list beneficiaries. Even if you do not have a will (Call us!), you have the opportunity to add beneficiary information to your financial accounts.

            Estate of Finley v. Allen, 2024 WL 2484466 is a good reminder that the step of adding or updating beneficiaries should be made thoughtfully and sooner rather than later.  In Finley, the Appellate court concurred with the trial court in finding for the listed beneficiary despite Ms. Finley sending an email three days before her death requesting the grandson be removed as beneficiary.  According to the Court:

“On January 19, 2022, Ms. Finley designated her grandson, William C. Finley, II, (“William”), as the sole beneficiary of her … retirement plan accounts (collectively referred to as “the accounts”) held by the investment firm Morgan Stanley Smith Barney (“Morgan Stanley”).  The beneficiary designation was accepted by Morgan Stanley after Ms. Finley completed the proper paperwork and it was received by Morgan Stanley per the terms of the TOD agreement.

On May 9, 2022, Ms. Finley emailed her Morgan Stanley financial advisor, Rick Morgan (“Mr. Morgan”), seeking to revoke William’s designation as sole beneficiary, and designating in his place her daughters Ingrid Allen (“Ingrid”) and Ilse Dehner (“Ilse”) as beneficiaries.  Mr. Morgan attempted to contact Ms. Finley to discuss her request, but was unsuccessful.  Ms. Finley died three days -2- later on May 12, 2022, having not submitted the TOD beneficiary designation form to Morgan Stanley.

Ilse was designated as executrix of Ms. Finley’s estate.  She presented a proposed final settlement to the Scott County probate court, in which she designated herself and Ingrid as beneficiaries of Ms. Finley’s Morgan Stanley accounts.  According to her counsel, she did this to carry out her mother’s wishes as evinced in Ms. Finley’s email to Mr. Morgan.

As a result, Ingrid and William filed the instant action … against Ilse, the estate, and Morgan Stanley seeking a declaration of rights.  They asserted in relevant part that Ms. Finley’s apparent attempt to change the beneficiaries on her account was not successful because she did not comply with Morgan Stanley’s requirement that a change of beneficiary form must be properly submitted and received before it is given effect.  Ilse counterclaimed, arguing that Morgan Stanley breached its contract with Ms. Finley by failing to carry out her request to change the beneficiaries.

The matter … [culminated] in the order granting William and Ingrid’s motion for a declaratory judgment.  The court ruled in relevant part that Morgan Stanley had specific requirements to change beneficiaries; that Ms. Finley was aware of those requirements and had complied with them when designating beneficiaries in the past; that her email to Mr. Morgan did not substantially comply with the requirements; and, that the failure to comply resulted in William remaining as beneficiary at the time of Ms. Finley’s death.”

            Despite Ms. Finely’s attempts to change the beneficiary back to her daughters, the courts held that the proper process was not followed and that “although the disposition in her will could constitute evidence of her subjective intentions, the making of the will was not enough to comply with the policy’s procedures.”

            While the standard of review for this matter relied upon Kentucky and New York law only, it is a good reminder to double-check who you have listed as the beneficiary on your financial and insurance accounts. Putting thought into this now and making sure you understand the beneficiary change process at your respective financial and insurance providers may very well save loved ones from contentious legal wrangling and ensure your wishes are properly recorded and followed.