FINRA says that LPL Financial, LLC must pay a fine of $950,000 for supervisory deficiencies involving the sale of alternative investment products, such as oil and gas partnerships, non-traded real estate investment trusts, managed futures, hedge funds, and other illiquid pass-through investments. By settling, the independent broker-dealer is not denying or admitting to the FINRA charges. LPL however, has agreed to an entry of the self-regulatory agency’s findings.
A lot of alternative investments establish concentration limits and certain states have even stipulated their own concentration limits for alternative investment investors. LPL also has set its own limits.
According to FINRA, however, from 1/1/08 to 7/1/12 LPL did not properly supervise the sale of alternative investments that violated of concentration limits. The SRO contends that even though initially LPL employed a manual system to assess if an investment was in compliance with requirements for suitability, the brokerage firm sometimes relied on inaccurate and dated data. Later, when LPL put into place a system that was automated to conduct the reviews, the system was purportedly not updated to make sure current suitability standards were correctly reflected and the programming in the database was flawed.
FINRA EVP and Enforcement Chief Brad Bennett said that because LPL did not have a proper supervisory system set up that could correctly and accurately evaluate if a transaction was in accordance to the necessary suitability requirements, the broker-dealer exposed customers to risks that were not acceptable. FINRA is also accused the firm of not properly training its representatives on how to properly follow suitability guidelines.
Meantime, an LPL broker that sold REITs to customers who was at the center of FINRA’s securities case against the firm has been fired. LPL has reportedly improved its supervisory procedures and policies.
Regulator fines LPL Financial $950,000 over sale of alternatives, Reuters, March 24, 2014
Read the FINRA action (PDF)
More Blog Posts:
FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013
LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013
LPL Financial Continues to Stay On Regulators’ Radar, Stockbroker Fraud Blog, April 10, 2013