Financial Planning (December 22, 2023) By Dan Shaw

7 Expungeable assets

Life got a little tougher for brokers who are hoping to clear their names using a formal process known as expungement.

FINRA in October put in place a series of changes meant to make sure that expungement remains the “extraordinary remedy” it was always meant to be. Expungement — the only way to have ill-founded customer complaints and other erroneous disciplinary information removed from online records — is meant for allegations that are factually impossible, clearly erroneous or made against a person who wasn’t involved in the disputed activity.

Among other things, the changes approved by FINRA stipulate that most expungement requests can be granted only by the unanimous consent of three-person arbitration panels. A simple majority is no longer enough.

The changes also set stricter time limits on when brokers can submit expungement requests and give state regulators and clients greater opportunities to weigh in on arbitration proceedings. Behind the reforms is a general feeling that expungement is too readily granted to advisors who go to the trouble of asking for it.

The Public Investors Advocate Bar Association frequently cites a study finding that FINRA arbitrators had agreed to erase complaint records in nearly 90% of the cases that came before them. PIABA representatives have since expressed optimism that greater participation by state securities regulators will make expungement a remedy reserved only for egregious cases.

But advisors are quick to note that customer complaints often receive very little vetting before being added to public databases. With the cost and difficulty of expungement now rising, many worry erroneous information will simply linger online