Advisors slapped with increased fines for pre-signed form infractions

Financial advisors have seen an uptick in penalties for pre-signed and altered form infractions in recent years as regulators crack down on their use. Advisors argue they are playing by the book.

In an interview with Advisor’s Edge, co-head of both Torys’ Securities Defence practice and White Collar Defence and Investigations practice John Fabello said playing by the book means following regulatory first principles (e.g., dealing fairly, honestly and in good faith) and legal first principles pertaining to contracts (e.g., account forms are documents with legal impact).

John told the publication that by not populating the form ahead of the client signing it, you’re leaving yourself open to an argument later that the client really didn’t agree to the terms.

“I can’t tell you how important [a properly signed form] is when I am helping defend advisors before the regulator and the courts,” he said.

Reflecting on the increased fines for pre-signed and altered forms, John noted that regulators have made clear that they want to ensure that the sanction acts as a real deterrent for advisors. However, there is a disconnect that often exists between what the regulator thinks is a reasonable penalty and the penalty’s financial impact on the advisor.

“I am routinely arguing for lower sanctions, because I believe […] the regulator’s objective of deterring conduct can be achieved with more reasonable fines,” he added.

Further to lower fines, John thinks any generic reference to fraud when conduct was unintentional should be changed. For example, forms were considered pre-signed because some items were left blank.

“Fraud is a very loaded pejorative term indicating intentional wrongdoing,” he said.

On the other hand, he encourages advisors to acknowledge regulatory notices and calibrate their practices to be consistent with that regulatory expectation.

“Otherwise, they’re going to be investigated and prosecuted, potentially,” John said.

You can read more about our Securities Litigation work on our practice page.

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