The Financial Industry Regulatory Authority (FINRA) fined six independent broker dealers for failing to give their clients the proper discounts available to them, known as breakpoint discounts, on large sales of certain nontraded REITs. The six firms are Voya Financial Advisors Inc. (Voya), Transamerica Financial Advisors Inc. (Transamerica), Investacorp Inc. (Investacorp), J.P. Turner & Co. (J.P. Turner), National Planning Corp. (National Planning), and Cetera Investment Services (Cetera).
The fines were levied in July and August and total more than $500,000. Voya and Transamerica were fined the largest amounts: $325,000 for Voya and $85,000 for Transamerica. The other fines levied against Investacorp, J.P. Turner, National Planning, and Cetera were: $50,000, $45,000, $30,000, and $30,000, respectively. All six firms were also ordered to pay restitution.
The settlements, in which the firms did not admit or deny FINRA’s findings, focus mainly on the independent broker dealers’ failure to maintain proper supervisory systems for the sale of non-traded REITs, which resulted in clients paying excessive sales charges.
Independent broker dealers (IBDs), like Voya Financial, Transamerica, Investacorp, J.P. Turner, National Planning, and Cetera, are notorious for their lax supervisory practices and procedures. The business model of these franchise operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office. The registered representatives of these IBDs generally operate as separately incorporated businesses. They are not employees of the broker dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors’ rights and interests as a low priority.
The typical supervisory organization of IBDs is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor’s compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these IBDs.
Broker dealers, including IBDs, must establish and implement a reasonable supervisory system to protect customers from broker misconduct. If broker dealers fail to establish and implement these protective measures, they may be liable to investors for damages flowing from the misconduct. Therefore, investors who have suffered losses stemming from excessive sales charges, markups, and/or other misconduct by their broker can bring forth claims to recover damages against broker dealers like Voya, Transamerica, Investacorp, J.P. Turner, National Planning, and Cetera, who should consistently oversee its employees’ activities in order to prevent broker misconduct, including the failure to properly provide breakpoint discounts to investors.
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 visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.