LPL Financial fined $11.7 million for 'widespread supervisory failures'

Finra said the firm failed to properly supervise sales of complex products, including certain ETFs, variable annuities and non-traded REITs

May 6, 2015 @ 9:54 am

By Mason Braswell

The Financial Industry Regulatory Authority Inc. ordered LPL Financial to pay $11.7 million in fines and restitution for what it deemed “widespread supervisory failures” related to sales of complex products, according to a settlement letter released Wednesday.

From 2007 to as recently as April, LPL failed to properly supervise sales of certain investments, including certain exchange-traded funds, variable annuities and nontraded real estate investment trusts, and also failed to properly deliver more than 14 million trade confirmations to customers, according to Finra.

LPL, for example, did not have a system in place to monitor the length of time customers held securities in their accounts or to enforce limits on concentrations of those complex products in customer accounts, Finra said.

The systems that LPL had in place to review trading activity in customer accounts were plagued by “multiple deficiencies,” Finra said. The firm failed to generate proper anti-money laundering alerts, for instance, and did not deliver trade confirmations in 67,000 customer accounts, according to the settlement letter.

The regulator also dinged the firm for failing to supervise advertising and other communications, including brokers' use of consolidated reports.

The penalty includes a $10 million fine and restitution of $1.7 million to customers who were sold certain ETFs. Finra said the firm may pay additional compensation to ETF purchasers “pending a review of its ETF systems and procedures.”

"LPL's supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business,” said Brad Bennet, Finra's chief of enforcement, in a statement. “With today's action, Finra reaffirms that there is little room in the industry for lax supervision and that it will not hesitate to order firms to review and correct substandard supervisory systems and controls, and pay restitution to affected customers."

LPL consented to the fine without admitting or denying the charges.

The fine is the latest in a string of regulatory actions that have plagued the firm in the past year. At the end of October, CEO Mark Casady apologized to shareholders for taking so long to straighten out its compliance issues, with the company taking a $23 million charge to resolve yet undisclosed regulatory issues.

A spokesman for the firm, Brett Weinberg, said that this fine was anticipated and is covered as part of that amount.

The firm also agreed to conduct a written review to improve its supervisory systems as part of the settlement.

“LPL has made a long-term commitment to rebuilding its risk management and compliance infrastructure, and this resolution is a significant step in that process,” Mr. Weinberg said in a statement. “The substantial and ongoing investments made by LPL in our legal, risk management, compliance and other control functions reflect that this is a top priority for the company.”


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