By Robert H. Rex, Esq.
In March 2014, the Financial Industry Regulatory Authority (FINRA) fined LPL Financial $950,000 for supervisory deficiencies in connection with the sales of various alternative investments including:
- Non Traded Real Estate Investment Trusts (REITs)
- Oil & Gas Partnerships
- Business Development Companies (BDCs)
- Hedge Funds
- Managed Futures
Most alternative investments specify the appropriate concentration limit for investors in the documentation provided to investors in the offering. Brokers are charged with making “suitable recommendations” to investors given their age, health and level of financial sophistication. In addition, many states have their own specified concentration levels for these investments.
What is a concentration level? It generally relates to the percentage of an investor’s liquid net worth (stocks, bonds, cash, etc…) that is invested in alternative investments. For example, if an investor has total liquid net worth of $750,000 and is sold alternative investments worth $50,000, the concentration level is 50,000/750,000, which is 6.7%. In most cases, after taking into consideration the age, health, etc of the investor, that may be an acceptable level of concentration. If however the amount of alternative investments was $150,000, 20% of liquid net worth, that could be a problem.
Alternative investments generally pay significantly higher commissions, to the broker and the brokerage firm, making them a tempting target for brokers to sell to often times very unsophisticated investors.
In this recent FINRA investigation, which LPL neither admitted or denied charges, FINRA found that from Jan 1, 2008- July 1, 2012, LPL Financial failed to adequately supervise its brokers selling alternative investments in violation of concentration limits.
LPL Financial’s has had many similar issues with securities regulators over its supervisory and compliance deficiencies. In December 2012, LPL paid $4.8 million in restitution to settle sales practice claims with William Galvin, Secretary of Commonwealth, Massachusetts Securities Division, over sales practices.
In March 2013, FINRA fined LPL Financial $7.5 million for failures related to their email system.
Rex Securities Law , with offices in Boca Raton, FL, and Austin, TX, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.
Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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