Next Financial Group was fined $475,000 by two states last month for various shortcomings in supervision and compliance stemming from the sales of nontraded real estate investment trusts.
Last Thursday, the Massachusetts Securities Division said it had reached a settlement and fined Next Financial $150,000 for sales practice violations and a failure to supervise, including allegedly unsuitable sales of REITs by an unidentified rep over a 10-year period. Massachusetts also alleged that many of the sales exceeded limits as determined by a client’s overall liquid net worth.
On Tuesday, the New Hampshire Bureau of Securities Regulation said it had also reached a settlement with Next Financial in which the broker-dealer agreed to pay a fine of $235,000 and costs of $90,000 for failing to reasonably supervise the sale of certain alternative investments to a number of clients, including unsuitable sales of nontraded REITs.
Nontraded REITs are high-commission products, and their
sales peaked in 2013 before the industry’s rush to meet requirements of various fiduciary rules or proposals that essentially limit the commissions firms and brokers charge for sales of investment products. Because REITs are a so-called alternative investment, states also typically have limits on the amount of the product a broker can sell to an individual investor, based on the client’s liquid portfolio or assets.
[More: Finra exams find fault with sales of variable annuities, nontraded REITs and private placements]
As part of both settlements, Next Financial also agreed to make offers to remediate clients, potentially adding to the cost of each regulatory matter.
““We have already taken steps to enhance our controls and remain focused on elevating our compliance practices across the organization,” Kathleen Hopkins, a spokesperson for
Atria Wealth Solutions, which owns Next Financial, wrote in an email.
According to the New Hampshire order, in 2017 the bureau received a complaint from a Massachusetts resident alleging, in part, that a broker, Charles Chester Kulch, had sold him securities that were not suitable.
According to
his BrokerCheck report, Mr. Kulch is registered with Next Financial and has 10 disclosures dating back to 1999. As part of the settlement agreement, Next Financial agreed that Mr. Kulch would work under heightened supervision by the firm and that it would not allow him to sell REITs and other alternative investments.
On Thursday, Mr. Kulch did not immediately return a phone call to comment.
