Principal Securities Inc. is again facing ugly allegations about a financial advisor's handling of a client's account in the Midwest, this time in Minnesota.
According to a recent filing with the Securities and Exchange Commission, Principal Securities has recently been hit with a lawsuit and Financial Industry Regulatory Authority Inc. arbitration claims stemming from a former registered representative who's in violation of Minnesota law.
The broker is not named in the filing, the firm's annual Focus report, which was filed with the SEC on February 28.
The claim appears to center on the unnamed ex-broker's alleged churning of variable annuities, an expensive and often misunderstood investment product.
The plaintiff suing the firm is the Legacy of Angels Foundation, a customer of the former Principal Securities broker. The foundation's complaint alleges "negligent supervision, forfeiture and disgorgement of fees and commissions regarding unsuitable recommendations by a former registered representative to purchase variable annuities and continued churning of the annuities."
The complaint also alleges fraud and other charges. Principal Securities estimates losses from the matter to be in the range of $3 million to $5 million.
A spokesperson for Principal Financial Group, which owns Principal Securities, did not return a call Friday morning to comment. A message was left on Friday with Legacy of Angels Foundation, but no one responded. The foundation has $30.5 million in assets and is based in Rosemount, Minnesota, according to guidestar.org, a website and database of nonprofit organizations.
It's not the first time in recent history a Principal financial advisor in the Midwest has caused headaches for the home office. In 2021, InvestmentNews reported that an Iowa-based advisor, John Krohn, engaged in behavior with clients known as selling away, which involves offering clients investments that are not approved by the firm.
Principal Securities eventually settled investor claims involving Krohn in 2021 for more than $4 million, according to his BrokerCheck profile.
“Principal is a relatively conservative firm that unfortunately does have these large lapses from a supervisory perspective,” said Andrew Stoltmann, a plaintiff’s attorney who sued Principal Securities in the Krohn matter.
“The model for supervising brokers has some flaws, and that allows dishonest, enterprising brokers to expose those flaws,” Stoltmann said. “The biggest push at the firm is for new business rather than supervising existing brokers and financial advisors.”
Despite a lighter regulatory outlook and staffing disruptions at the SEC, one compliance expert says RIA firms shouldn't expect a "free pass."
FINRA has been focused on firms and their use of social media for several years.
RayJay's latest additions bolster its independent advisor channel's presence across Pennsylvania, Florida, and Washington.
The deal ending more than 30 years of ownership by the Swiss bank includes six investment strategies representing more than $11 billion in AUM.
Divorce, widowhood, and retirement are events when financial advisors may provide stability and guidance.
How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave
From direct lending to asset-based finance to commercial real estate debt.
