Kestra Investment Services
Kestra Investment Services, LLC, ("Kestra") is a member of the Financial Industry Regulatory Authority ("FINRA") and also the Securities Investor Protection Corporation "(SIPC"). The parent company is Kestra Financial, Inc. Related entities are Kestra Advisory Services and Kestra Private Wealth Services.
Kestra is partially owned by WARBURG PINCUS FINANCIAL SECTOR, L.P., which is part of Warburg Pincus, a private equity firm that has been around for more than 50 years. Warburg Pincus traces its roots to E.M. Warburg & Co., which was started in New York in 1939 by Eric Warburg. Lionel I. Pincus & Co. bought the firm in 1966 and, the firm became Warburg Pincus. Other partial owners include the Kingfisher entities. National Financial Planners ("NFP") also had partial ownership but sold its interest.
Kestra is based out of Austin, Texas. They provide a platform for independent brokers/advisors to operate their own branch offices. These are usually sparsely manned or one-broker branches. One of those offices was operated out of Dothan, Alabama by the now notorious broker James Blake Daughtry.Kestra Agents Violated SEC’s Consumer Privacy Regulations
Daughtry, who operated the Daughtry Group, was registered as a broker with Kestra and is responsible for bilking hundreds of thousands of dollars out of clients. Kestra Financial also has several regulatory events on its official record.
In a recent matter before FINRA, neither denying nor admitting FINRA's findings, the broker-dealer consented to certain findings of fact, and ultimately, sanctions.
The investigation involved newly recruited Kestra Investment Services agents who took personal information from their prior employers. This information was then provided to a third-party consulting firm that assisted these recruits with the transition to Kestra. This was done without the previous employers' or the clients' consent, agreement, or understanding.
Such actions led to the violation of the SEC's regulations on consumer privacy intended to protect the personal information of clients. The SEC concluded that the firm had contracted with the third-party to design a form spreadsheet to compile data on the newly recruited agents' customers. This included personal data that could be deemed nonpublic.
The template was designed to compile a laundry list of data. This included birth dates, driver's license numbers, and social security numbers. It also had other data on client financial wherewithal. In some situations, existing Kestra employees helped the new recruits to fill out the spreadsheets while those individuals were still officially employed by a predecessor firm.
Existing Kestra staff did not actually receive copies of the completed template. However, all the information received by the third-party entity was transmitted onto new account forms for the potential clients once the brokers/advisors became officially employed by Kestra Financial and the client agreed to change firms. Kestra would reimburse the recruits for the costs associated with the services of the third-party vendor.
According to FINRA, the broker-dealer never made an effort to make inquiries of the recruits or the previous employers about client notification of the disclosure of personal data to the third-party entity. In any event, there appeared to have been no opt-out procedure for the clients. Moreover, Kestra Financial and Kestra Investment Services never provided guidance to the recruits on the issue of sharing client data with third-parties.
The firm never denied or admitted to the allegations. However, they did consent to the conclusions that it was in violation of FINRA Rule 2010 and also SEC Regulations. Kestra agreed to be censured and to also pay a six-figure fine.FINRA Found That The Firm Marketed Certain Shares Incorrectly
In a different matter, Kestra again consented to conclusions by FINRA that it put at a disadvantage some Charities and Retirement Plans that qualified for discounts on sales charges of specific mutual fund companies.
These entities, based on certain parameters, were eligible to acquire mutual funds without the need to pay upfront sales loads. FINRA determined that these Charities and Retirement Plans were instead marketed as a certain class of shares with a front-end sales load.
The firm also marketed certain share classes that had back-end loads when the entities in question qualified to no-fee purchases of the mutual fund shares with less ongoing expenses and fees. Such actions placed these customers at a disadvantage because they paid more than they actually had to pay.
FINRA also concluded that Kestra failed to properly supervise its agents on the issues of fee waivers and class eligibility for discounts/reduction of fees. It seems Kestra simply relied on its agents to do the right thing. In doing so, Kestra neglected to create and adhere to proper written policies or procedures to aid the brokers/advisors and protect the clients.
Additionally, Kestra did not properly train its agents on the above issues. Furthermore, the firm did not create proper controls to detect situations in which the complained of acts occurred.
Due to the broker-dealer's acts and omissions, it overcharged its clients approximately $1,648,984 over a nine-year period. Kestra agreed to be censured and it also agreed to a fine of $225,000. Additionally, Kestra was required to adopt a plan to pay back eligible clients who had overpaid fees.
In total, the brokerage firm had to pay restitution estimated to be $1,947,704 which included interest.Skilled Retirement Losses Lawyers
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We have recovered many millions of dollars on our clients’ behalf and we work with investors nationwide, as well as those abroad with broker fraud claims against US-based broker-dealers and their registered representatives.
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