Independent broker-dealer LPL Financial agreed to pay more than $6 million as part of a settlement with the Financial Industry Regulatory Authority (FINRA) addressing alleged supervision failures regarding direct business transactions and the suitability of switch transactions.
LPL was fined $5.5 million and will pay more than $650,000 in restitution to direct business customers, according to FINRA’s disciplinary action published Wednesday. The self-regulatory organization alleged various violations at LPL between January 2012 and November 2022.
The details: From January 2012 to August 2019, LPL allegedly failed to reasonably supervise direct business transactions, including by:
- Not ensuring its representatives reported such transactions on the trade blotter the firm used to identify potential sales practice violations;
- Not generating exception reports from these transactions to identify potential sales practice violations; and
- Failing to ensure it collected information for customers’ investment profiles relevant for making certain suitability determinations.
FINRA further faulted the firm for sending customers switch letters that contained inaccurate information between February 2016 and June 2020 because of missing details in the database from which its supervisory review tool drew.
From May 2017 to November 2022, LPL failed to establish, maintain, and enforce a supervisory system reasonably designed to ensure recommendations of publicly traded securities of business development companies complied with FINRA Rule 2111 and Regulation Best Interest’s care obligation, per the organization, leading to customer losses of about $74,000.
Compliance considerations: Regarding direct business transactions, FINRA said LPL was on notice of reporting lapses and alerted its representatives to the matter.
“Nonetheless, LPL did not take further action that would have required representatives to report the transactions, and the firm continued to collect fines for unreported transactions,” FINRA said.
In 2020, the firm began a retrospective review of its direct business transactions that flagged certain mutual fund share purchases that caused customers to pay approximately $546,000 in potentially excessive sales charges, per the action.
Firm response: “LPL takes its compliance obligations seriously and fully cooperated with the FINRA investigation, including self-reporting certain identified issues,” said the firm in an emailed statement. “LPL is pleased to have resolved these matters.”
The firm neither admitted nor denied FINRA findings.