Waddell & Reed (CRD# 866) 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 Waddell & Reed, its regulatory and customer 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 Waddell & Reed, 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 Waddell & Reed?
If you’ve lost money caused by Waddell & Reed and/or its employees’ misconduct then the answer is, YES, you can sue Waddell & Reed 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 Waddell & Reed in FINRA arbitration proceedings, but WIN that arbitration. The easiest way to know if you have a viable case against Waddell & Reed is to call Attorney Pearce at our office at 800-732-2889.
What is Waddell & Reed?
Waddell & Reed (CRD# 866) was first registered as a broker-dealer in 1938. In April 2021, the company was acquired and now controlled by LPL Financial Holdings, LLC. It remains headquartered in Overland Park, Kansas. 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 900 Waddell & Reed registered representatives in every state. It is now affiliated with the largest broker-dealer and investment advisory firm with over 18,000 financial advisors located throughout the United States.
Waddell & Reed Has Many Different Regulatory Problems
Waddell & Reed’s rapid growth has not been without consequences. There have been approximately 28 Federal, state and self-regulatory body disclosure events; that is, 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 of customer complaints filed against Waddell & Reed 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. Waddell & Reed is a repeat offender: there are over 8 FINRA reported disciplinary proceedings citing the firm with one form of supervisory lapses or another.
A BRIEF OVERVIEW OF SOME OF THE REGULATORY PROBLEMS WADDELL & REED HAS FACED OVER THE YEARS*
Waddell & Reed has been repeatedly censured, warned, and fined over $65 million for its own misconduct and failure to supervise its army of financial advisors. A few of the notable FINRA Sanctions for its Supervisory Failures are below:
SEC Orders Waddell & Reed To Pay $50 million For Market Timing Violations
The SEC investigated and discovered that Waddell & Reed permitted a number of individuals and entities (the “Market Timers” or “Timers”) to market time certain funds in the Waddell & Reed mutual fund complex (“Waddell & Reed funds”), subject to certain limitations on the number, amount and frequency of trades (“Timing Agreements”). Further, that it collected a total of $3.6 million in asset-based fees from three of these Timers (the “Fee Paying Timers”) pursuant to Timing Agreements with those entities.
Market timing includes (a) frequent buying and selling of shares of the same mutual fund or (b) buying or selling mutual fund shares in order to exploit inefficiencies in mutual fund pricing. Market timing, while not illegal per se, can harm other mutual fund shareholders, because it can dilute the value of their shares if the market timer is exploiting pricing inefficiencies. Market timing can also disrupt the management of the mutual fund’s investment portfolio, and frequent buying and selling of shares by market timers can cause the targeted mutual fund to incur costs it would not incur in the absence of the market timing.
During the relevant period, Waddell & Reed had internal procedures designed to prevent or limit market timing, and the Waddell & Reed funds had prospectus disclosures that fostered the impression that the funds discouraged timing. Nevertheless, Waddell & Reed permitted the Fee Paying Timers to time certain Waddell & Reed funds, and they permitted Timers, including the Fee Paying Timers, to time in the Waddell & Reed Advisors International Growth Fund (the “International Fund”), even though they knew that the Timers were harming that fund by diluting other investors’ returns.
The Timing Agreements benefited Waddell & Reed financially. In addition to asset-based advisory fees that Waddell & Reed Investment Management earned, Waddell & Reed also received asset-based fees from the Fee Paying Timers under the Timing Agreements. Because the timing that the Waddell & Reed permitted in return for those financial benefits potentially could (and at times did) harm the funds, Waddell & Reed Investment Management had a conflict of interest. It failed to disclose adequately the facts underlying that conflict to the board of directors of the mutual funds or the shareholders of the mutual funds, thereby breaching its fiduciary duty to the mutual funds.
The SEC ordered Waddell & Reed to cease-and-desist, censured the brokerage firm, ordered undertakings to correct its practices and procedures, and then ordered it to pay$40 million in disgorgement plus a civil money penalty of $10 million, for a total payment of $50 million.
FINRA Orders Waddell & Reed To Pay $16 million For Variable Annuity Sales Abuse
FINRA investigated Waddell & Reed and found that it failed to take adequate steps to determine whether there were reasonable grounds for customers to enter into variable annuity exchanges, failed to establish sufficient guidance for its sales force to use in determining the suitability of exchanges, failed to establish reasonable supervisory systems and reasonable written procedures regarding NASD’s suitability rule and failed to maintain books and records regarding unexecuted variable annuity exchanges, all in violation of NASD Conduct Rules 2110, 2310, 3010, and 3110, and SEC Rule 17a- 3a(6) for which it was censured, fined $5,000,000, and ordered to make restitution to customers in the amount of $11,000,000 for a total payment of $16 million.
FINRA Sanctions Waddell & Reed For Unregistered Salesperson
FINRA discovered that Waddell & Reed’s Compliance Department had been informed that an employee might be engaged in activities requiring registration. Further, that the Compliance Department directed that an investigation be conducted to determine the scope of the employees activities in the Dallas office. While the investigation included a discussion with a supervisor, no one involved in the investigation spoke with the employee, nor did anyone contact the customer who had sent the correspondence directly to the employee indicating he was engaged in sales activities. After the Compliance Department’s limited investigation, it concluded that the employee was not engaging in activities requiring registration even though he actually contacted customers and discussed investments with them. The customers surrendered their variable annuities, and invested their funds in fixed annuities issued by a company not affiliated with Respondent. Other customers liquidated their Individual Retirement Accounts and invested the proceeds invariable annuities. FINRA censured Waddell & Reed for the poor supervision and fined the firm $20,000.
*Above are only some of the regulatory disciplinary actions filed against Waddell & Reed by FINRA. There are 25 more SEC, FINRA, NASSA and/or state securities regulator investigations and enforcement actions reported on BrokerCheck as regulatory disciplinary proceeding disclosures.
Waddell & Reed Customer Complaints
There have been scores of customer complaints filed against Waddell & Reed stockbrokers and investment advisors over the years. We have launched many investigations of current and former Waddell & Reed advisors:
- Dan Avery of Waddell & Reed
- Jerrold Angel formerly with Waddell & Reed
- Linda Howard of Waddell & Reed
- Colleen Lenard of Waddell & Reed
- Roberto Montano Formerly With Waddell & Reed
- Cynthia Nagel of Waddell & Reed
- Candra Oakes-Niswanger of Waddell & Reed
- Ernest Anderson formerly with Waddell & Reed
- Rusty Coyle of Waddell & Reed
- Justin Larkin of Waddell & Reed
- Brett Ramsey of Waddell Reed
If you have lost money investing with any of these Waddell & Reed advisors or others within this brokerage firm, it’s important that you reach out to an investment loss attorney quickly because the statutes of limitations can bar your claims. Call us at 800-732-2889.
Why Does Waddell & Reed 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 Waddell & Reed 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. Waddell & Reed 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 Waddell & Reed without representation with an attorney about their complaints and have their complaints denied.
Consult With An Attorney Who Recovers Investment Losses Caused By Waddell & Reed Today!
The 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 Waddell & Reed 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.