SagePoint Advisors, a subsidiary of the Advisor Group, was fined $700,000 last week by the broker-dealer industry’s self-regulatory body for failing to maintain adequate oversight of brokers with disciplinary records.
The Financial Industry Regulatory Authority said in a letter on Friday that SagePoint had failed since 2013 to create an adequate supervisory system to keep watch on its Finra-registered reps and employees with histories of misconduct.
SagePoint’s structural divisions often made it unclear who was supposed to be laying down the law and imposing sanctions on problematic reps, said Finra—in other words, one hand at the firm often didn’t know what the other was doing.
The purported problem was a divided structure at the firm—a bifurcation between SagePoint’s compliance and supervisory personnel—that made it unclear who was supposed to be meting out penalties. Finra also called out SagePoint’s fragmented record-keeping, which meant reps’ conduct records were kept in different databases by different departments. That meant nobody had a full picture of a rep’s total number of infractions.
“Indeed, during the relevant period, there were more than 700 associated persons who had a disciplinary event recorded in one database but not the other,” said Finra’s letter.
For that reason, SagePoint failed to beef up its supervision on reps whose conduct raised red flags and follow up on them, said Finra. The letter pointed, for example, to 11 reps who were disciplined 110 times in total since 2013, yet the firm’s systematic problems meant there was no heightened supervision.
When one rep sold 40 equity-indexed annuities away from the firm, for example, and the rep was referred to the Executive Review Committee, the compliance personnel couldn’t add past disciplinary actions into the referral. That rep is still with the firm, Finra added.
One particularly egregious example of the problems at the firm was a registered rep (now barred by Finra) who was repeatedly disciplined for failing to submit variable annuity applications for preapproval.
“By early 2014, the firm also had discovered that [the rep] repeatedly had falsified information on variable annuity applications to circumvent the firm’s preapproval standards, and falsified information to the firm and on regulatory filings to conceal the extent of personal financial challenges. When considering disciplining [the rep] for those infractions, numerous SagePoint personnel … concluded that they could not trust him.” SagePoint personnel considered terminating him, but instead gave him another disciplinary letter and started a heightened supervision plan that Finra said was not implemented.
Different departments tried to pass the buck on the rep, said Finra.
“The compliance staff deferred to the [supervision regional vice president], believing the discipline and heightened supervisory plan ‘should be issued from Supervision,’ but the [supervision regional vice president] likewise deferred to compliance staff.”