lpl financial

Brokerage Fined $10M+ for Failure to Supervise Brokers

Many investors are not aware that the broker-dealer firm with whom their financial advisor is registered has a legal obligation to reasonably supervise its employees. Accordingly, firms that fail to adequately supervise agents may be fined and penalized by regulators.

New Hampshire to LPL: Alt Investments Must Be Suitable

A recent lawsuit by the state of New Hampshire against LPL Financial, one of the nation’s largest networks of broker-dealers, should be setting off alarm bells among investors who were recommended non-traded REITs and other alternative investments by their brokers.

LPL Gets Stung by FINRA for $950K over Alternative Investments

News arrived recently that LPL Financial has once again run afoul of the agency that regulates the US securities industry, FINRA (Financial Industry Regulatory Authority). This time, LPL was slapped with a whopping $950,000 fine for allegedly failing adequately to supervise sales of alternative investment products like non-traded REITs (Real Estate Investment Trusts), oil and gas partnerships, business development companies (BDCs), hedge funds, and managed futures. 

Alternative Investments Have Concentration Limits

FINRA found that from January 1, 2008 to July 1, 2012, LPL Financial was deficient in its supervision and review of especially the concentration limits for investors set forth by the alternative investments themselves, as well as limits that LPL internally set for itself. In their offering documents, many alt investments like REITs will describe concentration and suitability recommendations/requirements for investors. Unfortunately, according to FINRA, LPL’s manual process, its automated system, and its supervisory staff all failed to properly take into consideration suitability standards when evaluating alternative investments.

In addition to the $950,000 penalty, FINRA has directed LPL to conduct a complete review of its policies and procedures, oversight, supervision, and training related to alt investments.

As FINRA pointed out it in its press release about the disciplinary action against LPL Financial, broker-dealers who sell alt investments to customers must evolve a supervisory system to ensure that these customers are not exposed to undue risk in their accounts. They must also meet the suitability requirements obtaining in each state, for each product, and for their own company.

Lack of supervision of this kind is a very common form of broker misconduct. If you or anyone you know has suffered losses due to unsupervised alternative investments such as REITs, you may be able to recover through the FINRA arbitration process. Please contact us immediately for a free consultation at 1-877-462-3330 or via email by clicking here and sending us a note.

REITs Are Booming, But What Do We Really Know About Them?

This week, we saw yet another large brokerage get hit with an enormous fine for alleged misconduct related to the alternative investments known as non-traded REITS (real estate investment trusts). This time, it was LPL Financial. The firm was ordered by FINRA (the Financial Industry Regulatory Authority) to pay around $950,000 in fines for allegedly failing to adequately supervise sales of non-traded REITs and other alternative investment products.

In the past few years, non-traded REITs have become increasingly popular. Last year, around $20 billion of these complex financial products were sold to investors, up from just over $10 billion in 2012. That’s a huge jump. And more REIT shares than ever before are expected to be sold this year.

The problem is, while the popularity of REITs has obviously grown very rapidly, we have not seen a corresponding increase in the level of knowledge and familiarity with these products on behalf of both brokers and investors. In other words, people are selling and buying more and more of a product they still don’t know much about. That’s a recipe for investing disaster.

Non-traded REITs have more in common with private placements and other more exotic investment products than they do with traditional investments like stocks, bonds, and mutual funds. As the name itself suggests, non-traded REITs are not publicly traded and are, therefore, notoriously illiquid. In many cases, the money you invest in a REIT may not be available for a three-to-five year period. Plus, the value of your investment in a REIT may actually at times be lower than reflected on your account statements. Brokers need to be aware of these features of non-traded REITs, and of course they absolutely must have a candid discussion with their customers about them, too. Too often, as we’ve seen in cases of our own, brokers eager to collect the elevated fees or commissions associated with alternative investments like REITs fail to communicate with customers about clear illiquidity issues, a common form of negligence.

Fortunately, FINRA has caught on to the trend and has issued a number of warnings and guidelines for investors interested in better understanding these REITs. Click here for more info.

If you or anyone you know has been the victim of broker misconduct or investment fraud involving REITS, alternative investments, or traditional financial products, please contact us immediately for a free consultation at 1-877-462-3330 or via email by clicking here.