Scenario 3: One of your reps suddenly leaves, taking several high-net-worth clients in the process and blasting your firm to several prominent publications. How do you mitigate reputational risk from one loudmouth? How do you respond with your other reps and their end clients?
Ralph Devito, The Investment Center, Division II: I usually have the exact opposite happening. I had a rep leave the office having to sell out to another, larger RIA and change firms. The rep calls in tears because he really didn’t want to leave us. I’m kind of touched by it, but sad at the same time.
I don’t know if I would get into a war of words in the publication; it depends on what publication it is and how worthwhile I thought that would be. If I could call Jamie and get a rebuttal in your magazine, or on your website, I would probably do that.
But I think our reputation stands on its own with our reps. If I had to defend it to them maybe I would do it directly, but I’m not really sure that I would go public.
Eric Schwartz, Cambridge Investment Research, Division IV: It doesn’t seem that the magazines, the five or six main ones, publish anything like that. You don’t want to get involved with one rep out of 8,000 reps at a broker-dealer saying that it was a terrible firm and they’d done them wrong. Most of those articles are about how wonderful the new firm is, not how bad the old one is.
If somebody comes in to look at Cambridge and they spend a significant percentage of their recruiting time discussing how bad their old firm was, and not just, “Well, they’re outdated. They’re an insurance company. They didn’t keep up with technology” — that’s just statement of fact, presumably, or their opinion — but when somebody starts saying how evil [their old firm was], I start wondering, “Well, in two years, is that what he’s going to be saying about us?”
They think they’re going to tell everybody about you, and they even threaten to do that sometimes, but fortunately I think people who have been around a little bit realize that if we’ve got a good reputation, if we’ve won Broker-Dealer of the Year, if they’ve known 20 of our reps and one guy goes off the chart, only a small percentage of people would listen to it.
If there’s factual incorrectness, maybe we would say something about it, but do you really want to stir that up when you have 90% of your other reps out there telling the world a different story?
Lon Dolber: That’s not where our reputational risk issue has ever come from — an advisor badmouthing us that way. It’s come from law firms. We have law firms that on their website will put, “If you’re a customer of American Portfolios and you bought Medical Capital … ” or “ If you’re a customer of American Portfolios and you did this or you did that, give us a call because you may be entitled to blah, blah, blah, blah.” You know what we do? We file action against them. We are aggressive about that.
Green: Against the law firms?
Dolber: We go to the bar, and we tell them that it’s not right. We even had one law firm take credit. We had a situation where we had a fraud, and we handled it properly. Self-reported, usually a fidelity bond takes care of it. We did what we were supposed to do. There were just no lawyers involved.
We handled it as a responsible firm and this law firm pretended that they were the ones that helped out those clients.
Even if you had a regulatory fine, there are law firms that will say, “This firm has had a regulatory fine. If you lost money with this firm, give us a call.”
Schwartz: Yes, we’ve seen that, too.
Dolber: So we have a firm that looks for those firms that name us, and we go after them.
We had a reporter call us when private placement issues were going down with Medical Capital. We sold some of Medical Capital, not a lot. She was a young reporter. She came to see us to talk about it. We explained to her that it was a very small percentage of our business. It was not going to be a net-capital issue.
But the title when she came out with the thing is, “Long Island Firm Mired in the Muck of … .” She wrote a horrible article and never mentioned [that] we were able to prove that the clients needed to take those losses because they knew about the risk. Our paperwork was right, we won cases. She never printed that.
So what I did is I called the owner of the paper. I went to the editor first and said, “You had a responsibility to teach that person the right way. I’m not even mad at her. In fact, I’m inviting her back in so I can talk with her, but you are the one that should have looked at that article and asked her more questions about how she wrote it.” That’s how I handled it, but that was only one time that happened.