- March 8, 2021
- Cambridge Investment Research
Stewart Schram (CRD#: 1711571) was a Financial Advisor at Cambridge Investment Research, Inc., in Buffalo Grove, IL. He entered the securities industry in 1991 and previously worked for Freedom Investors Corp., and Kingsbury Capital, Inc.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in February 2021, FINRA sanctioned Stewart Schram, suspending him for four months beginning on March 1, and assessing a civil penalty of $7,500. The FINRA sanction states, “Without admitting or denying the findings, Schram consented to the sanctions and to the entry of findings that he engaged in an outside business activity without providing written notice to his member firm. The findings stated that Schram engaged in an outside business activity for the purpose of purchasing, renovating, and reselling real estate properties for profit, through multiple limited liability companies (LLCs) that were focused on a particular real estate opportunity. Schram was involved in the management of the outside business activity, including through maintaining the books and records of the different LLCs. Schram had a reasonable expectation of compensation resulting from this business activity, which was outside the scope of his relationship with his firm. In addition, Schram did not list this business activity on an annual compliance questionnaire that he submitted to his firm. However, Schram later self-reported the activity. The findings also stated that Schram engaged in private securities transactions without providing prior written notice to his firm. Schram and a business partner formed an LLC and participated in private securities transaction by soliciting individuals, comprising his friends and family, to invest $485,000 in this particular LLC. Schram did not receive any compensation for soliciting investments, nor did he represent or otherwise suggest that the investment has been approved by his firm.
For a copy of the FINRA sanction, click here.
The Financial Industry Regulatory Authority (FINRA) strictly prohibits financial advisors from “selling away” or selling securities and investments to clients that are not offered by the brokerage firm with which they are employed. For example, it is illegal and a violation of industry rules for a financial advisor to recommend or even suggest that a client invest in the financial advisor’s own business or a business operated by his or her friends or family. It is not necessary that the financial advisor earn any compensation for recommending an outside investment.
The purpose behind this prohibition is to ensure that a financial advisor only offers to sell securities that have been vetted by his or her employer brokerage firm through a rigorous due diligence process. Most brokerage firms have an approved list of investments, products, and research that can be provided or made available to clients. Any deviation by the financial advisor from the approved product list may constitute selling away.
In addition, Stewart Schram has been the subject of one customer complaints, including the following:
● February 2016 – “ALLEGATION DATES – 02/01/2005 – 07/31/2007 AN ARBITRATION WAS FILED BY [customer] CLAIMING UNSUITABLE INVESTMENTS.” The dispute was withdrawn.
For a copy of Stewart Schram’s FINRA BrokerCheck, click here.
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
FINRA has defined the standards in which investment recommendations made by brokerage firms and registered financial advisors are evaluated. The FINRA suitability rule focuses on three fundamental concepts: (1) reasonable basis suitability, (2) quantitative suitability, and (3) customer-specific suitability.
● Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
● Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
● Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, other investments, financial situation and needs, tax status, and investment objectives. Other considerations include the customer’s time horizon, liquidity needs, risk tolerance, and any other information disclosed by the customer.
Failure by a financial advisor to adhere to these requirements is evidence of negligence or, worse, investment fraud. If you as the investor can establish, at a minimum, negligent misconduct, you may be entitled to recover your investment losses.
The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at email@example.com.