LPL ordered to pay $2M in restitution

Fine comes as firm posts record revenue, sagging profits

Feb 6, 2013 @ 10:38 am

By Bruce Kelly

LPL, broker-dealers, nontraded REITs
+ Zoom

After announcing this morning that it posted record revenue in 2012 but failed to boost profits, LPL Financial LLC was hit with an order by Massachusetts Security Division to pay restitution of more than $2 million to investors who bought shares of nontraded real estate investment trusts.

Massachusetts regulators also hit LPL with a $500,000 administrative fine over the matter, which involved investors who bought shares of several different nontraded REITs in violation of state limitations, and the company's own rules and procedures.

LPL also has agreed to review all nontraded REITs sold in Massachusetts and offered to make restitution to all other investors who bought the securities in violation of state limits or company rules.

"LPL worked cooperatively with the Commonwealth of Massachusetts to appropriately resolve all of the issues raised and we are glad to put this matter behind us," said company spokeswoman Betsy Weinberger. "Under the terms of the consent agreement, certain customers, at their discretion, will have an opportunity to sell their shares of non-traded REITs to LPL or its designee for the price they originally paid."

LPL Financial and Ameriprise Financial Inc. are the two biggest sellers of nontraded REITs, accounting for almost 20% of the industry's annual sales of $10 billion. Regulators recently have put the nontraded REITs on close watch as a number of the largest REITs have suffered sharp devaluations.

Earlier Wednesday, LPL Financial's parent company, LPL Financial Holdings Inc., reported record revenue in 2012 of $3.66 billion, an increase of 5.2% compared with a year earlier. That did not translate, however, into an increase in profit for the year. The company reported a year-over-year decrease in net income, to $151.9 million, a drop of 10.8%.

LPL told its 13,000 registered reps and investment advisers last month that it was planning to cut jobs in the second half of the year and continue its move to outsourcing. The company's filing with the Securities and Exchange Commission did not detail the specific number of layoffs among its 2,900 employees.

However, the company stated that it expects total charges in connection with the program of $70 million to $75 million to complete the layoffs and outsourcing, which the company stated will not affect any workers who communicate directly with advisers.

In a conference call with investors and analysts on Wednesday morning, CEO Mark Casady said the areas LPL was looking at for outsourcing included: commissions processing, account openings and transfers, document imaging and processing work within compliance and finance.

When asked if the company expected states other than Massachusetts to examine the firm's sale practices of REITs, Mr. Casady said: “We will work with any state that may raise an issue,” as well with the Financial Industry Regulatory Authority Inc.

“We are in a business that is highly regulated,” Mr. Casady said. “It's easy to imagine expecting additional inquiries or discussions with other regulatory bodies because that's the nature of our business.”

For the quarter, LPL's earnings outperformed analysts' estimates. The company reported earnings of $0.50 per share, $0.02 better than the Capital IQ consensus estimate of $0.48.

In an interview Wednesday morning, LPL's chief financial officer Dan Arnold said that recent acquisitions and a $10 million increase in recruiting costs to transition brokers weighed on the company's earnings. The company continues to recruit registered reps and advisers at a strong pace, adding 182 net new advisers in the fourth quarter and 505 in 2012. The company also repurchased $199 million of its stock in the last three months of the year. At noon on Wednesday, shares of LPL Financial were down $0.71 and trading at $32.57.

Mr. Arnold also said the company had not yet determined the specific number of employees to be affected by the job cuts and outsourcing plan. The change will be completed in 2015 and result in savings of between $30 million and $35 million, he said.

In its consent order with Massachusetts regulators, LPL admitted to a series of statements of fact around the sales of the REITs but neither admitted nor denied allegations stemming from the training and oversight of sales of nontraded REITs as well as alleged violations of securities laws.

According to the statement of fact section of the order, LPL reps sold nontraded REITs in excess of Massachusetts maximum concentration limits imposed by the prospectuses of REITs for 33 residents. The REIT sales occurred between 2006 and 2009. Last summer, the firm began tightening its policies around such REIT sales after being contacted by Massachusetts regulators.

Massachusetts alleged that LPL's training and oversight of nontraded REIT sales were insufficient.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Jun 27

Webcast

Emerging Market Debt: 5 Forces at Work

When it comes to emerging market debt, there are a series of forces that help you drive better results for your clients. In today's continually changing market environment, it is critical to know the forces at play to help keep your investment... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Featured video

Events

Tech tools of tomorrow: Innovations your firms can't live without in 2020

Gadget Girl hits the tech pavilion at Pershing INSITE to see what exciting new tools advisers can't afford to miss.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

10 funds with largest 3-year outflows

Even well-managed funds that have beaten the S&P 500’s 10.1% average annual gain have watched investors flee.

Wirehouse training programs are back

At one time, major brokerage houses ran large, expensive training programs for thousands of young brokers, and now it looks as if they are about to return to that model.

New military pension rules need financial advisers to step up and serve

Matching defined contribution plan expected to see more money, more need for sound advice.

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print