Consulting

Finra Bars Ex-Schwab Recruiter Over Expenses, Outside Consulting Biz

July 2, 2021

In an enforcement action that spanned the broker-dealer and investment advisory divide, the Financial Industry Regulatory Authority has barred a former Charles Schwab & Co. business development officer in Chicago who improperly claimed expenses for advisory firm clients and ran an undisclosed outside business. 

In November 2018 and March 2019, Michael T. Carl, whose job was pitching advisors on using Schwab as their custodian, altered invoices and fabricated an email to cause Schwab to pay $19,000 for services that two RIA custody clients had used even though the RIAs were not eligible to have those expenses paid, according to a letter of settlement finalized on Wednesday. 

In both cases, Carl made it appear that another RIA, who was entitled to reimbursements, had used the vendor’s services, according to Finra. Schwab, which pays certain RIA custody clients’ expenses as a perq, paid the vendor directly. 

The brokerage industry’s self-regulator also accused Carl, who had been with Schwab for eight years of his 19-year career, of operating an undisclosed consulting business that conflicted with his work at Schwab.

The actions violated Finra’s catch-all Rule 2010 requiring high standards of commercial honor and its Rule 3270 barring brokers from participating in outside business activities without approval from their member firm. 

Carl, who had been affiliated with seven firms over his 19-year career, settled the charges without admitting or denying Finra’s findings. He did not return a request for comment sent through social media.

In recent years, both expense issues and brokers’ outside business activities have spawned dozens of Finra enforcement actions and have been high on the regulator’s enforcement priorities.

Carl left Schwab voluntarily in May 2019 while under review for his outside business activities. The review later turned up the misapplied invoices, Finra said, citing Schwab U5 filings. 

Since 2019, Carl has run a consulting firm, Redwood Advisor Services, which helps brokers set up their own RIAs and select service providers and vendors, according to his LinkedIn profile. The work appears similar to the business he had set up while at Schwab. 

Finra said Carl in March 2016 had solicited one of Schwab’s custody clients to contract with him for consulting services. For a quarterly fee, he offered to locate and hire vendors and services for the RIA, including custodians—“a conflict of interest in that Carl’s job at Schwab entailed, in part, attracting advisory clients to Schwab’s custodial services,” Finra said. 

Carl collected more than $40,000 in fees between 2016 and 2018 while attesting on annual Schwab compliance questionnaires that he was not involved in any outside activities, Finra said.  In March 2019, he also solicited another Schwab customer for consulting services. 

The agreement, which the RIA customer never finalized, included a confidentiality provision prohibiting it from being disclosed to Schwab and conditioning favorable Schwab pricing on whether the customer agreed to become Carl’s consulting client, according to Finra.