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IRA Dispute Offers a Bleak House for Fidelity Stockbroker
April 20, 2020
As we have reported in the Broke And Broker Blog, disappointed beneficiaries often insist that a decedent must have done X -- and if the decedent didn't, well, you know, the stockbroker or brokerage firm is at fault because they should have insisted that X be done. Of course, human nature and relationships (both marital and otherwise) being what they are, sometimes folks do inexplicable things for reasons that they take to the grave with them. In Charles Dickens' "Bleak House," we come across the epic lawsuit of Jarndyce v Jarndyce, which starts off with an inheritance that slowly but surely is depleted by legal costs:
Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means. The parties to it understand it least, but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world. Fair wards of court have faded into mothers and grandmothers; a long procession of Chancellors has come in and gone out; the legion of bills in the suit have been transformed into mere bills of mortality; there are not three Jarndyces left upon the earth perhaps since old Tom Jarndyce in despair blew his brains out at a coffee-house in Chancery Lane; but Jarndyce and Jarndyce still drags its dreary length before the court, perennially hopeless.
Case In Point
In a FINRA Arbitration Statement of Claim filed in October 2019, associated person Claimant Hwang sought the expungement of a customer complaint from his Central Registration Depository record ("CRD").In the Matter of the Arbitration Between Bryan S. Hwang, Claimant, v. Fidelity Brokerage Services LLC, Respondent (FINRA Arbitration Decision 19-03112)
https://www.finra.org/sites/default/files/aao_documents/19-03112.pdf
Respondent Fidelity concurred with Claimant's requested relief.
In recommending expungement, the sole FINRA Arbitrator found that the customer's claim, allegation, or information is factually impossible or clearly erroneous, and false. In explaining his rationale for recommending expungement, the Arbitrator offered a concise yet comprehensive rationale:
The allegations made were that Claimant failed to follow the estate plan of the decedent's estate, specifically with regard to a disclaimer of IRA proceeds, when the assets passed to the customer upon the death of her husband. No further action was taken by the customer after the customer made the allegation to the Respondent and the allegation was denied.Claimant credibly testified that he had a conversation with the decedent at which time the decedent explained several trusts, but did not indicate that Claimant (or Claimant's firm) was to amend the IRA beneficiaries regarding the later-disclaimed assets. Claimant submitted notes of that conversation and testified that they were taken contemporaneously with the conversation. Claimant also credibly testified that he was not permitted to offer estate-planning advice.The customer testified that she was not part of any conversation in which her late husband discussed the disclaimer of assets, but that her husband must have discussed the disclaimer. The limitation of her testimony was self-evident, and she did not have any documents to substantiate her testimony.
Bill Singer's Comment
In Hwang, the underlying complaint seems to have been made by the widow of the decedent customer, and she apparently complained that Hwang should have ensured that there was some "disclaimer" of IRA proceeds (likely to reduce taxation). As asserted by Hwang, the husband had not authorized the stockbroker or his firm to "amend the IRA beneficiaries regarding the later-disclaimed assets," and, moreover, the stockbroker was not "permitted to offer estate-planning advice." All of which seems to come down to a scenario whereby Hwang's defense against the widow's charges were that the husband didn't tell me, the husband didn't ask me, and I didn't offer any advice.
Disappointed beneficiaries often insist that a decedent must have or should have done X -- and if the decedent didn't, well, you know, the stockbroker or brokerage firm should have urged that X be done. Of course, human nature and relationships (both marital and otherwise) being what they are, sometimes folks do inexplicable things for reasons that they take to the grave with them. For some examples of the puzzling status of estate planning and IRAs, see, for example:
(BrokeAndBroker.com Blog / December 8, 2017)http://www.brokeandbroker.com/3711/widow-ira-finra/In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2016, Claimant Lee asserted negligence and responsibility under the doctrine of respondeat superior. As set forth in the FINRA Arbitration Decision:The causes of action relate to Respondents' alleged failure to designate Claimant as the beneficiary to an IRA account belonging to her late-husband.Claimant sought the alleged amount of the IRA at issue, which was alleged to be $135,373.76, plus attorneys' fee and costs. In the Matter of the FINRA Arbitration Between Mary C. Lee, Claimant, vs. AXA Advisors, LLC, Larry Dan George, and William Paul Evans, Respondents (FINRA Arbitration 16-03173, December 5, 2017).Ex-Wife, Deceased Father, Executrix Daughter, Retirement Account, And Annuity
(BrokeAndBroker.com Blog / July 19, 2016)http://www.brokeandbroker.com/3194/death-divorce-annuity/In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2014, Claimant Shannon Nafaa sought a declaratory judgment and asserted breach of contract and negligence in connection with her allegations that Respondents Morgan Stanley and Sun America had failed to properly and reasonably transfer ownership of a retirement account (held by Morgan Stanley) and an annuity (held by Sun America) in accordance with a divorce agreement. In the Matter of the Arbitration Between Shannon Nafaa, Individually and as the Executrix of the Estate of Raymond Ryals, Claimants, vs. Morgan Stanley Smith Barney, LLC, Linda Ryals, and Sun America Annuity & Life Insurance Company, Respondents - AND - Sun America Annuity & Life Insurance Company, Cross-Claimant, vs. Linda Ryals, Cross-Respondent (FINRA Arbitration #14-02663, July 5, 2016).(BrokeAndBroker.com Blog / May 17, 2011http://www.brokeandbroker.com/888/ira-beneficiary-finra-arbitration/In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2010, the Estate of Newman Trowbridge alleged that among other things, Respondents were guilty of negligence and a breach of fiduciary duty when they failed to advise Trowbridge to designate Lee Trowbridge (apparently, his surviving spouse in contradistinction to his divorced, ex-wife) as the IRA beneficiary in order for his wife Lee to be recognized by Respondent Capital One as the owner or beneficiary of his IRA account.Claimant sought at least $184,321.43 plus interest of ;nearly $9,000 ;in compensatory damages, attorneys' fees of $25,000.00, costs of $16,425.00, and additional damages as may be reasonable and appropriate. In the Matter of the FINRA Arbitration Between Succession of Newman Trowbridge, Jr. through its Executrix, Lee Trowbridge, Claimant, vs. Capital One Investment Services, LLC, and Rick E. Schenck, Sr. Respondents (FINRA Arbitration 10-02435, May 9, 2011).
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