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Regulation and Compliance > Litigation

Fidelity Hits Back at Fired Advisor's Reg BI Lawsuit

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What You Need to Know

  • Former Fidelity advisor Michael Maeker sued the firm, saying it pressured him to push clients into unsuitable, higher-fee investments.
  • Fidelity says it fired maker for misconduct.
  • The whistleblower protections Maeker is claiming in the case don't apply, Fidelity says.

Fidelity Investments denied it fired a financial advisor in retaliation for his whistleblowing over practices he alleges put firm profits before clients’ best interests, and asked a federal judge to dismiss the advisor’s lawsuit.

Michael Maeker, who spent 24 years with Fidelity, said the giant asset manager pressured him and other advisors to push clients from low-fee investments into ill-advised or unsuitable higher-fee managed money products that were more lucrative for Fidelity, in violation of the Securities and Exchange Commission’s Regulation Best Interest.

In a lawsuit filed in U.S. District Court in Dallas in May, he said the company fired him in December 2022 in retaliation for reporting such practices internally.

Fidelity, in response, said Maeker was fired because he “repeatedly engaged in deceptive misconduct that put Fidelity’s clients at risk” by sending financial planning reports to clients based on unconfirmed information. He also filed his internal complaint days after his manager asked him to return to in-person office work, Fidelity alleged.

The Allegations

Maeker contends Fidelity’s “illegal retaliation” and his wrongful firing have cost him millions of dollars in damages, emotional distress and reputational harm.

In his lawsuit, Maeker alleged Fidelity’s conduct over five years violated the Securities and Exchange Commission’s Regulation Best Interest, which governs broker-dealer conduct, and other laws related to fraud on shareholders. He also contended the company violated the Sarbanes-Oxley Act’s anti-retaliation and whistleblower protections.

Fidelity repeatedly breached its fiduciary obligation by improperly pressuring advisors to push their clients to move assets from low-fee investments such as index funds to higher-fee, “Tier 3” managed money products, including separately managed accounts, the advisor contends.

In Fidelity’s tiered system, Tier 1 assets — those providing the lowest revenue — comprise CDs and Treasurys; Tier 2, bonds, ETFs and mutual funds; and Tier 3 includes managed money, equities, alternatives and options, Maeker’s attorneys told ThinkAdvisor by email.

Fidelity denied pressuring branch managers or basing a sigificant portion of their compensation on their branches’ sales of those investments, as Maeker had alleged.

Fidelity also denied Maeker’s allegation that his Dallas branch manager continuously pressured him to push clients into unsuitable or ill-advised, high fee-generating financial investments regardless of investors’ best interest.

Maeker’s lawsuit fails to support retaliation claims, Fidelity contends, arguing that the whistleblower protections of Sarbanes-Oxley don’t apply to his case since Fidelity is a private company.

Fidelity also said it would have taken action against Maeker even if he had not engaged in the allegedly protected whistleblowing activity, and that this activity “was not the cause of or a contributing factor to an adverse employment action.”

Among other points, Fidelity contended Maeker had not suffered recognizable damages.

‘Deceptive Misconduct’

“This action stems from Fidelity’s August 2022 decision to remove Maeker from his role as a financial advisor after a thorough and impartial internal investigation revealed that he had repeatedly engaged in deceptive misconduct that put Fidelity’s clients at risk in order to make it appear — falsely — as though he was conducting financial planning with Fidelity’s clients, the job he was paid hundreds of thousands of dollars a year to do,” the firm alleged.

Fidelity’s Global Security and Investigations group determined that Maeker sent financial planning reports to his assigned clients without confirming with them the accuracy of information underpinning those reports, according to the filing.

“Among other things, those reports told Fidelity’s clients whether they were on track financially to support themselves in retirement in light of their expected retirement date, expenses, income, total assets, and the like, all of which can obviously change. Maeker’s behavior was deceptive and it was done to inflate his performance,” the firm said.

Fidelity alleged Maeker’s conduct violated Financial Industry Regulatory Authority rules as well as Fidelity policies and guidance.

After Fidelity in 2022 told FINRA its reasons for ultimately firing Maeker, the advisor responded that the firm’s allegations were false, misleading “and intended to cause harm to my career,” and that the company provided nothing in writing to corroborate them.

“My manager and Fidelity took action against me after I made multiple written reports of Fidelity’s and my manager’s unethical business practices and Reg BI violations,” Maeker told FINRA.

Fidelity’s filing alleged Maeker “made little progress” to improve his performance over two-and-a-half years after his new manager joined the Dallas branch in 2019 and made frequent attempts to motivate him.

In 2022, the manager asked him to return to the office once a week after Maeker had worked from home for two years, and only three days later, “Maeker made an anonymous, pretextual complaint claiming that (the manager) had violated an SEC rule requiring broker-dealers to act in their clients’ best interest,” Fidelity alleged.

“Ironically, it was Maeker himself who had failed to act in his clients’ best interest by neglecting to assist them with financial planning and sending them reports based on outdated and potentially inaccurate information,” the firm said.

Maeker’s lawsuit indicated he made his first internal whistleblowing complaint in December 2019, a few months after the new branch manager started.

In his lawsuit, Maeker noted he had been rated as successful or exceptional in performance reviews and received no warning memo or email about his alleged policy violations.

“The fact is that Fidelity did not raise any policy violations or performance issues with Maeker until after his whistleblowing report,” the lawsuit asserted.

Maeker has joined Texas Capital in Fort Worth as executive director, senior investment advisor for Private Wealth Advisors.

Legal experts have suggested Maeker’s lawsuit potentially could prompt the SEC to investigate and that it could lead to civil or criminal charges.

Image: Shutterstock


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