Stifel Nicolaus has consented to a settlement exceeding $450,000 to address accusations of inadequate supervision over representatives endowed with power-of-attorney for clients, alongside other compliance breaches.
The regulatory body for the brokerage industry, Finra, points out that between April 2014 and February 2021, Stifel lacked a robust system to scrutinize financial transactions conducted by representatives under power-of-attorney agreements. This oversight includes an instance where a former advisor is alleged to have diverted at least $105,000 from a client by issuing checks to himself.
Despite Stifel's rules against power-of-attorney arrangements for non-relatives, this broker received a waiver. It's alleged he tried to further misappropriate funds from the client even after an inquiry by Stifel, which resulted in no action against him.
Furthermore, Finra criticized Stifel for not acting on early warnings related to another advisor's dangerous and inappropriate investment strategies.
In resolving these issues, Stifel did not confirm or deny Finra's allegations but consented to a reprimand, agreed to pay a fine of $400,000, and to compensate more than $59,000 in restitution, plus interest.
A spokesperson for Stifel did not immediately return a request for comment.
Finra initiated a review of Stifel's power-of-attorney practices following the termination of a broker in January 2020, who was dismissed for unauthorized personal use of client funds, as documented in Stifel's U5 form which details the broker's exit from the firm.
The regulatory agency reminded firms of its guidance to have in place effective policies and procedures for managing withdrawals or transfers from client accounts, especially when advisors possess power-of-attorney.
In an incident outlined in Stifel's agreement with Finra, a broker gained power of attorney in 2011 for an elderly client. Between April 2014 and October 2018, he is accused of writing checks from the client's account, redirecting at least $105,000 to himself or his own accounts.
Although Stifel allowed this advisor power of attorney for a client who was not a family member in 2011, it failed to establish specific policies or training for monitoring accounts under such arrangements, according to the agreement document.
Under this arrangement, the account was marked for employee-related account reviews as per Stifel's policy, which included monthly checks. However, these reviews did not detect the unauthorized checks written by the broker.
During a comprehensive review in May 2019 of all non-family power-of-attorney relationships, Stifel discovered a $5,000 check the broker wrote to himself in August 2018, claiming it was for reimbursement of nursing home costs for the client—despite his authority to pay the nursing home directly. Stifel closed its investigation based on the broker's explanation.
In December 2019, the broker attempted to transfer the remaining funds in the client's account to himself. Stifel blocked the transfer and, after investigating, terminated the broker.
By February 2021, Stifel ceased granting power-of-attorney exceptions for non-relatives and, in July, formalized this policy without exceptions. The estate of the client was fully compensated for the broker's actions.
