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LPL Financial Ordered to Pay $6.3 Million in Restitution for Supervision Failures

FINRA censured and ordered LPL Financial LLC (LPL Financial) to pay $6.3 million for failures related to sales charge waivers. LPL Financial submitted a Letter of Acceptance, Waiver and Consent (AWC) to the Department of Enforcement of the Financial Industry Regulatory Authority (FINRA) for the alleged widespread supervisory failures.

LPL Financial is a brokerage and investment advisory firm with a principal place of business in Boston, Massachusetts. LPL Financial has been conducting securities business related activities since 1973. LPL Financial has over eighteen thousand registered representatives operating from nearly eleven thousand branch office locations.

FINRA found that since at least July 1, 2009 LPL Financial disadvantaged customers with monies in certain retirement plan and charitable organizations who were eligible to purchase Class A shares in specific mutual funds without front-end sales charges. FINRA alleged that LPL Financial sold Class A shares with front-end sales charges or Class B or Class C sales with back-end sales charges to increase the client’s fees and expenses. LPL Financial failed to maintain a proper supervisory system as eligible customers who purchased mutual funds shares didn’t receive the benefits of their applicable sales charge waivers.

Share class features and expenses as well as available sales charge waivers are described by LPL Financial in each mutual find in its prospectus and/or statement of additional information. While Class A shares are usually subject to a front-end sales charge, most funds offer investors a waiver of initial sales charge associated with Class A shares. The various sales charges, breakpoints, waivers and fees affect investor’s mutual fund returns.

If a client qualifies for a Class A sales charge waiver, and purchases Class A shares, the investors will not pay a front-end sales charge. Many mutual funds waive the up-front sales charges associated with Class A shares for certain retirement plans and charitable organizations. However, in the case of LPL Financial, thousands of investors who qualified for the sales charge waivers were still charged the additional expense. FINRA found that LPL Financial failed to apply the waivers to eligible customers and instead sold them shares with either front or back-end sales charges that created higher ongoing fees for the clients putting them at a disadvantage.

FINRA alleged that LPL Financial failed to reasonably supervise the application of sales charge waivers to eligible mutual fund clients and relied on its registered representatives to determine the applicability of the waivers. In doing so, FINRA submits that LPL Financial failed to maintain adequate policies and procedures as well as failed to properly train its representatives regarding the availability of mutual fund sales waivers to eligible customers. For failing to properly supervise, LPL Financial violated NASD Conduct Rule 3010, FINRA Rule 3110 and FINRA Rule 2010.

FINRA recognized LPL Financial’s effort in cooperating with the investigation by not only bringing notice to the unapplied waivers, but also promptly establishing a plan of remediation for the affected customer and taking steps to correct and prevent future misconduct. In addition to full restitution, LPL Financial was ordered by FINRA to submit a written report describing how the firm corrected its systems and procedures within 180 days of the AWC.

Stockbrokers have been known to engage in many types of practices which violate industry and firm rules, practices, and procedures. In order to protect customers from stockbroker misconduct, FINRA rules require broker-dealers LPL Financial to establish and implement a reasonable supervisory system. The implementation of the rules require supervisors to monitor employees to ensure they comply with federal and state securities laws, securities industry rules and regulations, and the firm, such as LPL Financial own policies and procedures. If broker dealers and/or their supervisors do not establish and implement these protective measures, they may be liable to investors for damages which flow from the misconduct. As a result, investors who have suffered losses because of their stockbroker’s unlawful or prohibited conduct can file a claim to recover damages against broker dealers like LPL Financial, which should consistently oversee its employees in order to prevent stockbroker misconduct.

Have you suffered losses in your LPL Financial investment account due to your stockbroker’s misconduct? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against stockbrokers for unsuitable recommendations, misrepresentations, and/or other unauthorized and prohibited conduct.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 35 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities, and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please post a comment, call (800) 732-2889, send Mr. Pearce an email at pearce@rwpearce.com, and/or visit our website at www.secatty.com for answers to any of your questions about this blog post and/or any related matter.