Kestra Investment Services LLC will pay $125,000 in penalties for helping brokers it was recruiting disclose personal client information to a third-party vendor that helped the reps with their transition, according to the Financial Industry Regulatory Authority.

Kestra caused those broker’ firms to violate the Security and Exchange Act’s privacy rules, known as Regulation S-P, because the information was disclosed without the other broker-dealers’ or the customers’ knowledge or consent, Finra said in the consent agreement, under which the firm will also be censured.

According to Finra, from about November 2017 to February 2019, Kestra contracted with a third-party vendor to provide assistance to recruited brokers who had agreed to join the firm. Finra said Kestra worked with the vendor to create a template spreadsheet to collect data on recruited representatives’ customers, including their nonpublic personal information.

The spreadsheet, Finra noted, contained customers’ Social Security numbers, driver’s license numbers, birth dates, their account numbers, annual incomes and net worth, among other information. Sixty-eight brokers were able to take nonpublic personal customer data from their broker-dealers and pass it on the vendor, Finra said.

Finra said Kestra employees sometimes assisted brokers in completing the spreadsheet. They arranged and participated in conference calls between the vendor and the brokers and provided them with guidance on filling it out, Finra said, noting that Kestra employees did not receive copies of the spreadsheet or have access to the nonpublic personal information provided to the vendor.

Finra said that once a recruited representative became registered through Kestra, the vendor used the spreadsheet to automatically prepopulate new account forms, which the vendor sent to customers who agreed to open Kestra accounts. Kestra typically reimbursed recruited representatives for the fees charged to them by the vendor to generate Kestra’s new account documents, Finra said.

Kestra caused the other broker-dealers to violate Regulation S-P because it failed to take steps to inquire whether the recruited representatives or their broker-dealers had notified customers about the disclosures, nor did Kestra take any steps to inquire whether customers had been given an opportunity to opt out of having their information disclosed.

Finra said Kestra also failed to provide any guidance to the recruited representatives concerning the disclosure of customers’ nonpublic personal information to the vendor. 

Kestra, which is headquartered in Austin, Texas, has 678 branch offices and about 1,846 registered representatives, accepted the sanctions without admitting or denying the findings, Finra said.

Kestra spokeswoman Lindsay Fitzpatrick said in an email the firm does not comment on legal matters.