LPL Financial has agreed to pay more than $6 million in penalties for securities violations that included failure to supervise its reps and misleading clients about fees, Finra announced.
Under the agreement, LPL Financial will pay a fine of $5.5 million and restitution of $651,375, the regulator said, adding that the broker-dealer also agreed to a censure.
Finra said in a filing Tuesday that LPL was cited for not reasonably supervising its registered reps when they made direct business transactions, sending customers letters with fee inaccuracies, and failing to ensure that certain recommendations of business development companies complied with Reg BI.
The violations happened between January 2012 and November 2022 and came to light during a Finra examination, as a result of self-disclosure made by LPL and, in at least one case, a customer complaint, Finra stated in the consent agreement.
LPL did not respond to a request for comment.
Up to June 2020, LPL supervised its representative’s transactions in part by reviewing reports that identified potential sales practice violations, including potentially unsuitable transactions that failed to take into consideration the customer’s investment profile, according to Finra. The firm used its daily trade blotter in its automated trading system to generate these “exception” reports.
But from January 2012 to August 2019, LPL did not have a system for including direct business transactions, which reps transact outside of the automated trading system, in the daily trade blotter, according to Finra, meaning direct business transactions were not subject to the same exception reviews.
Instead, LPL would reconcile direct business transactions with the daily trade blotter only when its registered representatives manually reported the transactions, and LPL had no reasonable system for ensuring that its reps did that, Finra said. If LPL received commission records from product sponsors that had no corresponding manual entry, the firm would fine the rep $5 per transaction per month.
“During one six-month period in 2017, LPL identified more than 1,300 representatives who had 10 or more unreported direct business transactions, and the firm issued nearly 82,000 fines,” Finra said in the agreement. “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.”
From January 2012 to August 2019, about 830,000 direct business transactions went unreported on the trade blotter LPL used to identify potential sales practice violations, according to Finra.