William Galvin, the securities regulator of the state of Massachusetts, has filed charges against Citizens Securities for purportedly selling an older investor funds that were too high risk for her investment tolerance level. He wants restitution for the investor, who lost approximately $7,000.
Citizens Securities operates out of Citizen Bank locations. According to the state, even though she had a low risk tolerance level, the woman was sold alternative and emerging markets funds and funds that purchase high-yield bonds. She also purchased a market-linked CD, investing $100K, without comprehending that it was riskier than a regular CD.
Her financial consultant, whom she met at Citizens Bank, purportedly did not give adequate disclosures of the branch’s brokerage activities or tell her the name of his employer. This caused the investor to think that he worked for the bank.
The advisor is accused of disregarding the elderly investors stated goals and not asking about her investment experience or education. The administrative complaint says that she told the financial consultant that she didn’t want to be exposed to the stock market. It also said that financial consultants at Citizens Bank are not supervised daily or in-person.
Galvin noted that it is essential for banks that provide non-bank financial services to clearly articulate that there is a difference between banking services and other financial services offered even if they are provided at the same place. He said that senior customers are especially prone to thinking that there is no distinction between such services because of their more “traditional view” of banks.
Citizens Securities offers a small amount of fund complexes through a portfolio that can be generated via automated advisory platform Envestnet. After a fund complex is chosen, there is no way for a financial consultant to modify what the computer generates. However, as Galvin noted, investment advisers have a fiduciary duty to clients that they have to abide by even if a robo adviser is the one that told them what funds to pick.
The state wants a cease and desist order and a censure, in addition to restitution for the woman.
Read the Complaint (PDF)