LPL Financial hit with $2M fine, ordered to pay $820K in restitution

Settlement charges, higher expenses dampen 2Q financials

Jul 30, 2014 @ 8:42 am

By Bruce Kelly

LPL Financial last month was hit with a $2 million fine, and ordered to pay $820,000 in restitution, for failing to maintain adequate books and records documenting variable annuity exchanges, known as 1035 exchanges, according to the firm's profile on BrokerCheck.

The previously unreported settlement with the Illinois Securities Department contributed to flat second quarter earnings at LPL Financial Holdings Inc., leading the firm's CEO, Mark Casady to tell analysts on a conference call Wednesday morning that “We are not happy with these results.”

According to the BrokerCheck report, LPL Financial “failed to enforce its supervisory system and procedures in connection with the documentation of certain salespersons' variable annuity exchange activities,” according to the BrokerCheck report.

“LPL is pleased to have settled this matter following inquiries in which we cooperated fully with the State of Illinois,” said company spokeswoman Betsy Weinberger in an email.

“With regard to the accuracy of surrender charges incurred in connection with variable annuity exchange transactions, the company is instituting enhanced procedures with a view to ensuring that these charges are accurately reflected in the firm's books and records as well as in any disclosures given to clients, and that advisers are adequately documenting the basis for their variable annuity recommendations,” Ms. Weinberger wrote.

In its quarterly earnings report Wednesday morning, LPL reported that general and administrative expenses for the quarter ended June 30 increased 24% to $106.8 million from $84.5 million in the year-ago quarter.

The increase in general and administrative expense was primarily related to the resolution of regulatory issues, the company said in a statement.

Earnings per share were also flat year over year, at 42 cents.

For the past year and a half, LPL has been dogged by state regulators examining sales of investment products, including nontraded real estate investment trusts. In February 2013, LPL Financial reached a settlement with the Commonwealth of Massachusetts to pay at least $2 million in restitution and $500,000 in fines over the sale of nontraded REITs.

Last year, the Financial Industry Regulatory Authority Inc. fined LPL Financial $7.5 million for 35 separate significant e-mail system failures.

LPL also was ordered to create a $1.5 million fund to compensate brokerage customers potentially affected by its failure to produce e-mail.


With regulators raking LPL over the coals, the company has spent the last year-and-a-half beefing up its oversight of complex products such nontraded REITs and variable annuities, said Dan Arnold, its chief financial officer, in an interview Wednesday after the company's conference call with analysts.

Total expenses for the quarter increased 8.2% year-over-year, to $1.02 billion. LPL, however, “expects to have 8% expense growth fall into the low single digits,” he said.

LPL has increased the number of employees in its legal and risk departments by 41% since the start of 2013 and now has 636 employees in areas that focus on compliance and oversight, said Mr. Arnold, echoing comments made by Mr. Casady on the morning's conference call. Seventy of those employees work in product oversight for complex investments including variable annuities and nontraded REITs, he said.

The company is also continuing to increase its use of technology and automation in the oversight of its advisers, he said.

While not happy with this quarter's earnings, Mr. Arnold said he was sanguine regarding LPL's growth outlook for the second half of the year, particularly recruiting and retention, with expenses to be controlled better in the next six months.

“There are good, sound underlying characteristics driving growth,” he said, pointing to the second quarter's recruiting, which saw LPL gain 114 in net new advisers. LPL now has 13,840 registered reps and advisers, an increase of 3.2% from a year earlier.


What do you make of LPL's financial results?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Mar 13



InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video


Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print