NEXT Financial Group, Inc.
NEXT Financial Group, Inc. is based out of Houston, Texas. According to its website, the company started in 1999 and provides financial services for investors. NEXT claims to have over $14 billion in assets between retail, institutional, and trust accounts.
The President of the firm is Barry G. Knight. Atria Wealth Solutions is the parent company and it purchased NEXT Financial in 2019. Atria itself originated in 2017. It is a holding company that also owns Cadaret Grant a firm out of Syracuse, New York, and Western International Securities based in Pasadena, California.
Atria is part of the portfolio of a private equity group known as Lee Equity Partners based out of New York. Atria was founded by Doug Ketterer, Eugene Elias, and Kevin Beard.
NEXT Financial Group prides itself on having a "Rep-Centric" culture. The phrase is open to interpretation, but a reasonable person may infer that the focus tends to favor the representative over the client. Essentially, the financial advisors and stockbrokers at NEXT generally operate without any on-site management. NEXT Financial Group has several complaints on its CRD, which is the official record for all FINRA licensed brokerage firms.The SEC Filed a Cease and Desist Order Against NEXT Financial Over Unsuitable Recommendations
The Securities and Exchange Commission, in March of 2019, initiated a cease-and-desist filing against NEXT Financial. The SEC concluded, and NEXT consented, to findings of inadequate disclosures and breaches of fiduciary duty by the firm regarding its class election protocols for mutual fund shares and the fees associated with the different class levels.
According to the SEC, NEXT made recommendations or otherwise caused advisory clients to hold share classes of mutual funds which levied "12b-1" fees (annual fees charged for marketing purposes) in-lieu of share classes of the exact same fund family that offered lower-cost share classes for eligible clients.
The broker-dealer garnered these fees above what it normally would obtain in similar circumstances, and also neglected to inform the public, on its form ADV (an official document mandated to be kept up to date under SEC Rules), of the above-described conflicts associated with its selection of classes of mutual fund shares, and the 12b-1 fees it garnered.
According to the SEC, such conduct knowingly violated sections 206(2) and 207 of the Advisers act. As such, the firm, without admitting nor denying the conclusions, agreed to cease-and-desist the actions described above and further agreed to not commit future violations of sections 206(2) and 207.
The brokerage firm was also censured, agreed to disgorge itself of the $1,241,907.77 it improperly obtained and further agreed to pay prejudgment interest of $163,442.12.Next Financial Group Also Accused of Failing to Properly Supervise Its Stockbrokers
In another instance, according to the regulatory body FINRA, which oversees brokerage firms and advisors that work for them, NEXT did not properly implement and maintain a reasonable system of supervision for the specific purpose of detecting accounts that were excessively traded.
FINRA's conclusions determined that the above-described issues of supervision were the result of an inadequate response or policy implementation taken by the firm in attempting to correct a previous FINRA disciplinary problem involving exception reports, which are essentially protocols designed to identify excessive trading in client accounts.
Additionally, NEXT Financial did not identify situations involving excessive trading because it lacked clear and identifiable protocols on supervision and the various responsibilities of those involved in the chain of command. FINRA provides an example wherein a registered agent with the company was engaging in trading that was deemed excessive. The improper trading spanned a fourteen-month time-period.
During this time frame, NEXT and its supervisors and/or compliance personnel did not detect the excessive trading that would have been visible on internal documents known as "exception reports". This NEXT agent garnered improper commissions exceeding $145,000.
Conversely, the poor client suffered serious losses of over $390,000. This client was over 60 years of age which generally means the client is retired or near retirement. Moreover, the client had a risk tolerance ranging from conservative to moderate, with an income generation objective. This client, according to the records only made about $60,000 per year.
FINRA also analyzed certain industry metrics regarding the trading in the account. One of the metrics was something known as the "cost-to-equity ratio". This ratio determines the break-even point in an account once accounting for fees. The client in question had a cost-to-equity of 23.2%, meaning the commissions in the account were so high, the investments would have to have an annual return of 24% just to barely make a profit.
Obviously, such returns are unlikely, so the client was never going to make money. At the very least the broker/advisor would have to take great risks to do so. It is also industry-standard that excessive trading strategy is deemed highly aggressive.
According to FINRA, NEXT Financial did not supervise the agent in question properly given the excessive trading activity and the failures surrounding the exception reports. It appears the only reason the malfeasance was detected was due to a complaint filed by the client. As a result of the complaint, NEXT conducted an internal investigation, fired the broker/advisor, and paid back the client over $385,000.
FINRA concluded that had the firm implemented proper procedures regarding branch audits and evidence of excessively traded accounts been acted upon, NEXT may have prevented the improper trading discussed above. FINRA also concluded in unrelated matters, that the broker-dealer had improper supervisory protocols and reasonable procedures regarding Variable Annuity sales and the suitability issues associated with such.
Without admitting nor denying anything, NEXT Financial Group received censure from FINRA, they also received a fine of $750,000, and lastly, were required to hire a third-party consultant to review firm procedures and policies related to the above acts and omissions.Did You Suffer Investment Losses? Get Legal Advice Today
If you believe that you suffered investment losses as a direct result of fraudulent actions carried out by a Next Financial financial advisor or any other broker, contact our securities fraud lawyers today. We have over 30 years’ experience of representing investors across the United States.
We have gone up against the largest firms on Wall Street and have successfully helped investors recoup their losses. For more information, contact us today to receive a free, no-obligation case consultation.