RIA Compliance Blog
Earlier this month, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined LPL Financial (“LPL”) $10 million for lack of supervision in several areas of its operations, including sales of ETFs, variable annuities, REITs, and other complex products. In addition, FINRA found LPL failed to monitor trades and failed to report them to FINRA and failed to deliver more than $14 million in trade confirmations to customers. FINRA also ordered LPL to repay certain customers $1.7 million in restitution relating to the purchases of ETFs. Among FINRA’s findings were that the firm did not have a system that monitored how long customers were holding ETFs in their accounts, information that would be important in formulating advice as to whether the ETFs should have been purchased in the first place and how long the client should be recommended to hold the ETFs in their portfolios. Additionally, even though LPL had created policies limiting the concentration of ETFs in customer accounts, it failed to enforce the limits it had established and had not trained its registered representatives on the risks of those products.
With respect to variable annuities, FINRA found that in several instances, LPL had permitted said annuities to be sold without proper disclosure of surrender fees. Additionally, although LPL employed an automated surveillance system, that system failed to adequately review transactions commonly known as mutual fund “switches,” which involve a redemption of one mutual fund in order to purchase another.
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