In a settlement reached with the Illinois Securities Department, LPL Financial (LPLA) agreed to pay a $2 million fine and $820K in restitution for inadequate books and records maintenance involving 1035 exchanges. According to the firm’s BrokerCheck file, LPL Financial did not enforce “supervisory system and procedures” when certain persons documented variable annuity exchange activities.
Following the settlement, a company spokesperson said that LPL Financial is enhancing its procedures related to surrender charges resulting from variable annuity exchange transactions. This is to make sure these are accurately documented in records, books, and any disclosures that are issued to clients. The brokerage firm is also taking steps so that advisers are properly documenting why variable annuity recommendations were made.
State regulators have been taking a closer look at LPL as they investigate investment product sales. Last year, the broker-dealer settled with the Massachusetts for at least $2 million and a $500,000 fine over nontraded real estate investment trusts. Financial Industry Regulatory Authority fined the firm $7.5 million for 35 e-mail system failures.
In response to the scrutiny, LPL Financial CEO Mark Casady told 3,500 advisers they will need to provide more documentation and background to show regulators. The firm has implemented automated processes to enhance data focus and is looking at other ways to meet regulatory obligations.
According to InvestmentNews.com, a rise in administrative and general costs, primarily because of the regulatory scrutiny, led to flat second-quarter earnings for LPL Financial Holdings Inc. Meantime, UBS Wealth Management (UBS), which also has had to deal with more scrutiny in the wake of the Puerto Rico municipal bonds, debacle, also took an earnings hit. The firm has put aside $44 million for litigation by investors claiming muni bond fraud. Oppenheimer Holdings (OPY), which is under investigation not just by FINRA but also the Securities and Exchange Commission and the U.S. Treasury Department, has reportedly put aside $12 million for possible fines.
LPL Financial hit with $2M fine, ordered to pay $820K in restitution, Investment News, July 30, 2014
LPL Tells Brokers To Expect More Paperwork, The Wall Street Journal, August 13, 2014
More Blog Posts:
LPL Financial Fined $950K by FINRA for Supervisory Failures Involving Alternative Investments, Stockbroker Fraud Blog, March 25, 2014
FINRA Bars Ex-LPL Broker Over Nontraded REIT Sales, Stockbroker Fraud Blog, December 27, 2013
LPL Financial Ordered to Pay $7.5M FINRA Fine Over E-Mail Failures, Institutional Investor Securities Blog, May 22, 2013