Brokerage Firm Review: LPL Financial LLC

LPL Financial, LLC (CRD#:6413) has many different complaints filed by FINRA (Financial Industry Regulatory Authority), state regulatory organizations, and investors such as yourself. At the Law Offices of Robert Wayne Pearce, we have investigated various different LPL Financial Complaints and have also represented investors with claims of fraud, negligence, and breach of fiduciary duty against this organization and its financial advisors.

If you believe you have a claim against LPL Financial, you should strongly consider hiring an investment loss lawyer. You should not wait until it’s too late to file a claim. The Law Offices of Robert Wayne Pearce, P.A., offers free consultations. Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Can I Sue LPL Financial?

If you’ve lost money caused by LPL  Financial and/or its employees’ misconduct then the answer is, YES, you can sue  LPL  Financial, but the odds are you signed away your right to sue in court and agreed to resolve your dispute in a FINRA arbitration proceeding.  Attorney Robert Wayne Pearce has over 40 years of personal experience in FINRA arbitration proceedings and knows very well how you can not only sue LPL Financial in FINRA arbitration proceedings, but WIN that arbitration.

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

What is LPL Financial?

The genesis of LPL Financial, LLC (“LPL  Financial”) (CRD#:6413)  was two financial institutions: an investment advisory firm, Linsco, and a broker-dealer, Private Ledger.  In 1989, the two merged as Linsco/Private Ledger. Since then there have been several name changes and restructuring of the LPL brand and its 17 finance and insurance affiliated businesses. The company is controlled by LPL Financial Holdings LLC and headquartered in Fort Mill, South Carolina with large corporate offices in Boston, Massachusetts; Austin, Texas; and San Diego, California.  Its independent broker-dealer Business Model has grown through acquisition and organic development of primarily one and two person registered representative offices supervised remotely. Today there are over 13,000 LPL Financial branch offices with over 21,500 registered representatives in every state.  It is now the largest broker-dealer and investment advisory firm in the United States.

LPL Financial has Many Different Regulatory Problems 

LPL Financial’s rapid growth has not been without consequences. There have been approximately 180 Federal, state and self-regulatory body disclosure events; that is, 180 final and formal proceedings initiated by a regulatory authority (e.g., a state or federal securities agency like the U.S. Securities and Exchange Commission (SEC) or self-regulatory body like the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association (NASAA) ) for a violation(s) of investment-related rules or regulations. In addition, there have been hundreds, if not, thousands of customer complaints filed against LPL Financial for misconduct by its securities sales and investment advisory representatives that are not reported by the firm on its Central Depository Record. 

We have reported and written about these regulatory problems and customer complaints over many years. LPL Financial is a repeat offender: there are over 20 FINRA reported disciplinary proceedings citing the firm with one form of supervisory lapses or another in the last decade.

A Brief Overview of Some of the Regulatory Problems LPL Financial has Faced Over the Years*

LPL Financial has been repeatedly censured, warned, and fined over $100 million for its own misconduct and failure to supervise its army of financial advisors. A few of the notable FINRA Sanctions for its Supervisory Failure are below:

Fined $6.3 Million for Alleged Widespread Supervisory Failures

Brief Overview: FINRA censured and ordered LPL Financial to pay $6.3 million for failures related to sales charge waivers. LPL Financial submitted a Letter of Acceptance, Waiver and Consent (AWC) to FINRA for the alleged widespread supervisory failures.

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Fined $11.7 Million for Failing to Maintain a Proper Supervisory System With Respect to the Sales of Complex Investment Products

Brief Overview: LPL Financial was fined $11.7 million by FINRA for failing to maintain a proper supervisory system with respect to the sales of complex investment products, such as exchange-traded funds, variable annuities, mutual funds, and non-traded real estate investment trusts.

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Fined $10 Million for Failing to Establish and Maintain a Supervisory System and Procedures Reasonably Designed to Supervise its Rapid Growth of its Independent Broker Enterprise

Brief Overview: Beginning in 2007, LPL Financial Holdings, Inc.. pursued a strategy of significantly increasing the size of its wholly-owned broker-dealer subsidiary, LPL Financial. This strategy included acquiring numerous financial services firms, consolidating them with LPL Financial and recruiting registered representatives from other broker-dealers. From 2007 to 2013, the number of registered representatives grew from approximately 8,322 to 17,601 and the Firm’s revenues grew from approximately $2.28 billion for the fiscal year ended December 31, 2007 to approximately $4.05 billion for the fiscal year ended December 31, 2013. LPL Financial, however did not accompany this rapid growth with a concomitant dedication of its resources to permit the Firm to meet its supervisory obligations. As a result, LPL Financial failed to have adequate systems and procedures in place to supervise certain aspects of its business, including: sales of particular complex products (exchange traded funds, variable annuities, non-traded real estate investment trusts), the review of trades and delivery of trade confirmations. As a result. LPL Financial violated numerous federal securities laws and FINRA and MSRB rules. 

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Fined $6.5 Million Failing to Establish and Maintain a Supervisory System Reasonably Designed to Comply With Its Record-Keeping Obligations

Brief Overview: LPL Financial was censured and fined $6.5 million for failing to establish and maintain a supervisory system reasonably designed to comply with its record-keeping obligations. It failed to maintain over 1.5 million customer communications concerning mutual fund switches, and customer investment objectives. Failed to store over 87 million required records in a non-re-rideable, non-erasable format which meant they were vulnerable to edits by unscrupulous advisors and managers. It failed to send out over 1,000,000 36 month customer investment objective update letters designed to make sure that a broker’s recommendations were consistent with those objectives. Failed to fingerprint financial advisors and permitted statutorily disqualified persons with criminal convictions to continue to work as financial advisors with the firm. Failed to supervise the preparation and retention of consolidated reports which enabled financial advisors to create and disseminate false reports to their customers. 

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Fined $10 Million for Anti-Money Laundering Supervisory Failures

Brief Overview: LPL Financial was censured and fined $10 million for anti-money laundering supervisory failures. As a result of AML program and supervisory failures, the Firm failed to file with the government and with FINRA information critical to the protection of investors and the public. First, as a result of its unreasonably designed AML program, the Firm failed to investigate certain attempts to gain unauthorized access to electronic systems and potential illegal activity carried out by electronic systems (collectively “cyber related events”) that should have resulted in the filing of Suspicious Activity Reports (“SARs”). Second, the Firm failed to file or amend Forms U4 or US to report certain customer complaints. Specifically, the Firm too narrowly interpreted the requirement that a complaint contain “a claim for compensatory damages of $5,000 or more.” The Firm also failed to amend in a timely manner its registered representatives’ Forms U4 and U5 to disclose customer complaints and other reportable events, including judgments, bankruptcies, terminations, and regulatory and criminal actions. 

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Fined $6.5 Million for Failing to Create Records of What It Had Sent to Customers, And Failing to Send Over 1.6 Million Account Notices Required Under Rule 17a-3(a)(17) Of the Exchange Act

Brief Overview: From 2009 to the present, LPL Financial failed to send, and to create records that it had sent to customers, more than 1.6 million account notices required under Rule 17a-3(a)(17) of the Exchange Act. The Exchange Act rule requires these account notices be sent to customers at 36-month intervals for each account in which a suitability determination had been made. Over this seven-year period, LPL Financialfailed to send over 25 percent of the required notices. As a result, LPL Financial violated Rule 17a-3(a)(17), NASD Rules 3110 and FINRA Rules 4511 and 2010: 

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Fined $6.5 Million for Failing to Maintain Over 18.3 Million Electronic Communications in Non-Erasable and No-Rewritable WORM Format, Retain Check Registers, and Failed to Have an Adequate Supervisory Process Concerning Worm Compliance

Brief Overview: From December 23,2010 to November 17, 2015, LPL Financial failed to maintain over 18.3 million electronic communications in non-erasable and no-rewritable format, known as WORM format, as required by Section 17(a) of the Exchange Act, Rule 17a-4(f) thereunder, NASD Rule 3110 and FINRA Rule 4511. WORM stands for “write once, read many,” and is intended to prevent the alteration or destruction of broker-dealer records maintained on electronic storage media. Additionally, from January 1, 2010 to June 24, 2016, the Firm failed to retain in WORM format approximately 231 check registers. Finally, LPL Financial’s written supervisory procedures failed to have an adequate supervisory process concerning WORM compliance, in violation of NASD Rule 3010 and FINRA Rule 3110. 

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Ordered to Pay $5.72 Million for Failing to Establish and Maintain a Supervisory System and Procedures Reasonably Designed to Ensure That Eligible Customers Who Purchased Mutual Fund Shares Received the Benefit of Applicable Sales Charge Waivers

Brief Overview: Since at least July 1, 2009, LPL Financial has disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge (“Eligible Customers”). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. During this period, LPL Financial has failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, LPL Financial violated NASD Conduct Rule 3010 (for misconduct before December 1, 2014) and FINRA Rules 3110 (for misconduct on or after December 1, 2014) and 2010. 

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Fined $7.5 Million for Failing to Establish and Maintain a Supervisory System and Procedures Reasonably Designed to Supervise Electronic Communications

Brief Overview: From 2007 to 2013, LPL Financial’s email review and retention systems failed repeatedly, leaving the firm unable to meet its obligations to supervise its representatives and respond to regulatory requests. The firm was aware of these pervasive failures and the overwhelming complexity of its email system, but never took adequate remedial measures to address these shortcomings or simplify its email system. As a consequence, the firm suffered at least 35 significant failures that prevented it, at various points in time, from accessing hundreds of millions of emails and reviewing tens of millions of emails. In July 2011, in response to a request from FINRA staff for more information about this significant email issue, LPL submitted a letter and chronology that inaccurately stated that the issue had been discovered in June 2011 even though certain LPL Financial personnel had information that would have led to the discovery of the issue as early as 2008. Moreover, the letter stated that there were no red flags suggesting any issues with email accounts. In fact, there were numerous red flags related to the supervision of emails that were known to many LPL Financial employees years prior to the firm’s Rule 4530 report. 

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Censured and Fined for Failing to Establish and Maintain a Supervisory System and Procedures Reasonably Designed to Ensure Delivery of Prospectuses

Brief Overview: From January 1, 2009 through June 30, 2011, LPL Financial failed to implement and maintain adequate supervisory systems and procedures to monitor and ensure the timely delivery of mutual fund prospectuses, as required by Section 5(b)(2) of the Securities Act of 1933 (the “Securities Act”). This failure violated NASD Conduct Rule 3010(a)(1) and (b)(1), which also constitutes a violation of FINRA Rule 

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Censured and Fined for Failing to Establish and Maintain a Supervisory System and Procedures Reasonably Designed to Supervise the Offer and Sale of Alternative Investments

Brief Overview: Between January 1, 2008 and July 1, 2012, LPL Financial violatedNASD Rule 3010(a) and 3010(b), NASD Rule 2110 and FINRA Rule 2010 by failing to implement an adequate supervisory system for the sale of alternative investments that was reasonably designed to achieve compliance with NASD Rule 2310, and state suitability requirements. Specifically, the LPL Financial failed to have a reasonable supervisory system and procedures to identify and determine whether purchases of non-traded real estate investment trusts, oil and gas partnerships, business development companies , equipment leasing programs, real estate limited partnerships, hedge funds, managed futures and any other illiquid pass-through investments (collectively, Alternative Investments) caused a customer’s accounts to be unsuitably concentrated in violation of FINRA suitability standards. 

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Censured and Fined for Failing to Reasonably Supervise the Sale of Certain Brokered Certificates of Deposit

Brief Overview: From January 2010 through at least December 2016 (the “Relevant Period”), LPL Financial failed to reasonably supervise the sale of certain brokered certificates of deposit (“Brokered CDs”), which the firm characterized as non-security CDs because they were FDIC insured instruments. In particular, LPL Financial failed to ensure that (1) its registered representatives were trained on all material risks and features of Brokered CDs and (2) LPL Financial failed to adequately disclose all material risks and features of Brokered CDs to customers. By virtue of the foregoing, LPL violated NASD Rule 3010(a), and. FINRA Rules 3110(a) and 2010. 

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Why Does LPL Financial Have So Many Regulatory Problems And Customer Complaints?

Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise type operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers 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 their lowest priority.

The typical supervisory organization of independent broker-dealer operations 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 Independent broker-dealers. 

Generally, there is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. There may be no one onsite to detect forgeries of clients’ signatures on documents, the placement of inaccurate information about a client’s investment objectives and financial condition to document the suitability of a particular investment recommendation. Oftentimes there is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, it is not unusual for there to be only one compliance audit visit per year at many of these offices.

These Independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms than the traditional brokerage firms with branch offices with on-site managers and compliance personnel.

Did LPL Financial Advisor Misconduct Cause You Investment Losses?

When financial advisor misconduct has caused you to lose substantial value to your investment accounts, you have the right to seek reimbursement from the responsible parties. LPL Financial is responsible like any employer for its financial advisors acts and omissions. In addition, it has an independent duty to supervise its stockbrokers and investment advisors. These cases can be extremely complex, and so having the support of a reputable attorney who is experienced in recovering investment losses for investors is key to your success. Many customers make the mistake of contacting LPL Financial without representation with an attorney about their complaints and have their complaints denied.

Related Read: Can You Sue Your Brokerage Firm?

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

Consult With An Attorney Who Recovers Investment Losses Caused By LPL Financial Today!

The securities attorneys at The Law Offices of Robert Wayne Pearce, P.A., have helped countless investors over the last 40 years recover the losses from their investment accounts that were caused by broker negligence or misconduct. The firm has extensive experience with LPL Financial cases, and Attorney Pearce is committed to seeing that those responsible for the losses you have suffered are held fully accountable.

Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $160 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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