Financial Industry Regulatory Authority (FINRA) sanctioned LPL Financial, LLC with fines of $10 million for, “broad supervisory failures in a number of key areas, including the sales of non-traditional exchange-traded funds (ETFs), certain variable annuity contracts, non-traded real estate investment trusts (REITs) and other complex products”. Additionally, FINRA ordered that $1.7 million in restitution be paid to investors by LPL Financial to certain customers who purchased non-traditional ETFs.
FINRA Examination Findings
According to FINRA regulators, “LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business.” This lack of resources resulted in transactions in complex investment products including non-traded REITs, variable annuities and exchange traded funds that were not properly supervised. The FINRA examination of LPL Financial supervisory procedures found the following:
Non-traditional ETFs: LPL Financial “did not have a system to monitor the length of time that customers held these securities in their accounts, concentration limits of those products in customer acclonts, and failed to ensure that all of its registered representatives were adequately trained on the risks of the products.”
Variable Annuities: LPL Financial “failed to supervise its sales of variable annuities, in some instances permitting sales without disclosing surrender fees, and in connection with certain mutual fund “switch” transactions, it used an automated surveillance system that excluded these trades from supervisory review.”
Non-traded REITs: LPL Financial “Failed to Supervise non-traded REITs by, among other things, failing to identify accounts eligible for volume sales charge discounts.”
FINRA examinations are intended to uncover failures to comply with rules and regulations designed to protect investors. According to the FINRA news release, LPL Financial “failed to report certain trades to FINRA and failed to ensure it provided complete and accurate information to FINRA and to federal and state regulators concerning certain variable annuity transactions.” FINRA found, “LPL failed to reasonably supervise its advertising and other communications, including its registered representatives’ use of consolidated reports. LPL did not monitor the creation or use of consolidated reports, and failed to ensure that these reports reflected complete and accurate information.” These findings assert that LPL Financial, in its communications with both regulators and investors, have not complied with securities industry sales practice rules and regulations.
Klayman & Toskes, P.A. is a securities litigation law firm dedicated to the protection of investor rights. We can help investors recover investments losses in non-traded REITs, variable annuities and exchange traded funds that are the result of LPL Financial violations of FINRA sales practice rules and regulations.