Firm Settles Charges for Reg BI Supervisory Failures

A dually registered broker-dealer and adviser settled FINRA charges for supervisory failures and unsuitable recommendations which violated duty of care obligations under Regulation Best Interest.

According to the AWC, the firm provided a 12-month waiver of advisory fees on "certain new-issue products." FINRA stated that this waiver was contingent on customers purchasing the products "initially in an advisory account." FINRA found that the broker-dealer's registered representatives advised customers to purchase such products in brokerage accounts and, subsequently, transfer the products to the customers' respective advisory account(s). As a result, customers could not take advantage of the fee waivers and paid the otherwise avoidable advisory fees. The recommended procedure resulted in over 1,000 customers collectively paying nearly "$1.5 million in avoidable fees."

FINRA found that the firm violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade") and Exchange Act Rule 15l-1(a)(1) ("Regulation Best Interest").

FINRA credited the firm for "extraordinary cooperation" which included: internal reviews to identify affected customers, remedial measure to enhance its supervisory processes, and commitment to pay restitution to affected customers, among others. To settle the charges, the firm agreed to (i) a censure and (ii) to pay $1,486,380, plus interest.