The Financial Industry Regulatory Authority (FINRA) has fined LPL Financial US$950,000 for supervisory deficiencies related to the sales of alternative investment products.
As part of the sanction, LPL must also conduct a comprehensive review of its policies, systems, procedures and training, and remedy the failures.
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Many alternative investments, such as REITs, set forth concentration limits for investors in their offering documents. In addition, certain states have imposed concentration limits for investors in alternative investments.
LPL also established its own concentration guidelines for alternative investments. However, FINRA found that from January 1, 2008, to July 1, 2012, LPL failed to adequately supervise the sales of alternative investments that violated these concentration limits.
At first, LPL used a manual process to review whether an investment complied with suitability requirements, relying on information that was at times outdated and inaccurate. The firm later implemented an automated system for review, but that database contained flawed programming and was not updated in a timely manner to accurately reflect suitability standards.
LPL also did not adequately train its supervisory staff to analyze state suitability standards as part of their suitability reviews of alternative investments.
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By GlobalDataBrad Bennett, executive vice president and chief of enforcement, FINRA, said, "In order to sell alternative investments, a broker-dealer must tailor its supervisory system to these products. LPL exposed customers to unacceptable risks by not having an adequate system in place that could accurately review whether a transaction complies with suitability requirements imposed by the states, the product issuers and the firm itself – and it failed to train its registered representatives to apply all the suitability guidelines appropriately."
In settling this matter, LPL Financial LLC neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck.
FINRA makes BrokerCheck available at no charge. In 2013, members of the public used this service to conduct 16.5 million reviews of broker or firm records.
