Finra slams Cetera with $1 million fine over RIA supervision

The shortcomings were related to supervision of some dually registered reps, according to the regulator

Finra earlier this week hit Cetera Financial Group broker-dealers with a fine totaling $1 million for failing to supervise certain private securities transactions made by dually registered representatives at unaffiliated, outside registered investments advisers.

The shortcomings in supervising advisers who work at the independent, outside RIAs and also work with the Cetera firms as brokers go back to 2011, according to the Financial Industry Regulatory Authority Inc. settlement, which was released on Tuesday. Three firms were the focus of the Finra action: Cetera Advisor Networks, Cetera Advisors and Cetera Financial Specialists.

In 2018, Finra proposed a new industry rule to streamline brokerages’ oversight of outside business activities, including relieving them of their supervisory and record-keeping responsibilities for unaffiliated registered investment advisers.

Cetera is a large network of six broker-dealers and 8,000 financial advisers that has changed hands a few times in the last decade and was most recently acquired in 2018 by private equity manager Genstar Capital.

As part of the settlement, the Cetera firms neither admitted or denied Finra’s findings in the matter. They also agreed to review and revise
systems, policies and procedures with respect to the supervision of their outside, dually-registered advisers’ securities transactions.

“We are pleased to have settled this historical matter, having taken the corrective actions to resolve the matters identified by Finra,” a company spokesperson wrote in an email.

Cetera knew about the shortcomings in overseeing the transactions of the outside advisers but came up short in putting in place appropriate guardrails, according to Finra.

By early 2018, the outside, Cetera reps managed more than
$80 billion in customer assets across more than 47,000 accounts, Finra noted.

“The Cetera firms were aware of the supervisory deficiencies — they were identified in Securities and Exchange Commission examinations in July 2013, August 2015 and September 2017 — yet, despite several efforts to address such deficiencies, failed to implement systems and procedures to reasonably supervise the transactions,” according to the Finra settlement.