LPL cranks up oversight in response to regulators

LPL Focus 2014: Firm CEO Mark Casady tells 3,500 advisers to be ready for more requests for documentation and background.

Echoing recent comments from other brokerage executives, LPL Financial CEO Mark Casady told an audience of 3,500 advisers on Monday that securities regulators have ratcheted up oversight to new levels.
“We are asking more from you in documentation and background,” Mr. Casady said in San Diego at LPL Financial’s annual meeting, Focus. “We know your work is outstanding, but we have to show your work to the regulators to make sure we are protecting you, your clients and the firm.”
The Financial Industry Regulatory Authority Inc., the industry’s self-regulator, is adding resources, technology and people, and intensifying their exams and audits, he said. “It’s the toughest environment I’ve seen in 30 years in the industry.”
Ten years ago, securities regulators also acted with such zeal, Mr. Casady said. That was in the wake of the 2001 market crash and the 2003 mutual fund scandals that caused regulators to examine the sale of different share classes of funds, he noted.
“The last time it was like this was in 2004, with the B share and C share focus,” he said. “But today is 10 times more difficult than that.”
LPL recently has gotten attention from state regulators as well as Finra. LPL Financial in June was hit with a $2 million fine by Illinois, and ordered to pay $820,000 in restitution, for failing to maintain adequate books and records documenting variable annuity exchanges, known as 1035 exchanges.
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, Finra fined LPL Financial $7.5 million for 35 separate significant e-mail system failures.
To address such issues, LPL has “spent millions, and have millions more to go,” Mr. Casady said.
Robert Moore, LPL’s president, has had individual meetings with 13 state regulators, as well as meetings with national regulators, as part of LPL’s effort to overhaul its focus on risk management and compliance, Mr. Casady said.
LPL has also introduced automated processes to increase its focus on data, he said. LPL has been “on the risk management journey for about a year now,” Mr. Casady said. “The goal is to improve ourselves” and better meet the company’s regulatory obligations.