'This LPL case is a grab bag,' says industry attorney

'This LPL case is a grab bag,' says industry attorney
Finra hits LPL, Interactive Brokers with fines as 2023 closes.
JAN 02, 2024

The Financial Industry Regulatory Authority Inc. closed the year with substantial, multimillion-dollar penalties against two prominent firms, LPL Financial and Interactive Brokers.

On Dec. 27, LPL and Finra reached a $6.15 million settlement over the firm falling short on its supervision of thousands of transactions that its financial advisors and brokers completed from 2012 to 2019 with product sponsors such as a mutual fund company. In industry parlance, these transactions are known as "direct" business.

With more than 21,000 financial advisors using its platform, LPL agreed to pay a fine of $5.5 million and restitution of $651,000 to clients to settle the matter. LPL agreed to the settlement without admitting to or denying Finra's findings.

Earlier, on Dec. 22, Finra and Interactive Brokers, which specializes in equities and options trading, agreed to a $3.5 million fine for failing to comply on best execution and supervision standards from 2014 through last year. Interactive Brokers reached the settlement without admitting to or denying Finra's findings.

“Importantly, there are no allegations or findings by Finra in its settlement order that [Interactive Brokers’} smart order routing logic caused customer harm or failed to provide best execution to our customers,” a company spokesperson wrote in an email. “In fact, after testing and review, [Interactive Brokers] concluded that no changes needed to or should be made to the firm’s smart order routing logic as a result of Finra’s findings.”

Finra has a history of signing off on large fines and settlements as the end of the year approaches, and in some cases that decision may be driven by the firm it is dealing with.

"Sometimes, these settlements occur because it’s the end of the year and firms want to simply close the case out," said one industry attorney who asked not to be identified because of the firm's involved in the settlements. "This LPL case is a grab bag. It looks like the product of a whole bunch of unrelated matters that LPL may be trying to resolve."

In the past, LPL has paid large fines to settle compliance issues with Finra and state regulators. In 2014 and 2015 alone, the firm paid $70 million in fines and restitution to customers, a staggering sum for a retail-focused broker-dealer. More recently, Finra fined LPL $3 million last year for falling down on its oversight of two financial advisors who pocketed $2.4 million from 13 clients, mostly senior citizens.

"LPL takes its compliance obligations seriously and fully cooperated with the Finra investigation, including self-reporting certain identified issues," a company spokesperson wrote in an email. "LPL is pleased to have resolved these matters."

"LPL did not take steps reasonably designed to ensure that its representatives reported such [direct] transactions on the trade blotter the firm used to identify potential sales practice violations, resulting in approximately 830,000 such transaction not appearing on the blotter," according to Finra. "The firm did not supervise these transactions since it did not generate exception reports from these transactions to identify potential sales practice violations, including potentially unsuitable transactions."

Finra also cited LPL for sending more than 11,000 clients inaccurate information from 2016 to 2020 about charges incurred when "switching" securities, a common practice. Finally, from 2017 to 2022, LPL also fell short in its supervision of recommendations of traded business development companies, a popular alternative investment, according to Finra.

Quality, bond yields count most for stocks in coming year, says Schwab's Sonders ID

Latest News

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

Apella Wealth comes to Washington with Independence Wealth Advisors
Apella Wealth comes to Washington with Independence Wealth Advisors

The Harford, Connecticut-based RIA is expanding into a new market in the mid-Atlantic region while crossing another billion-dollar milestone.

Citi's Sieg sees rich clients pivoting from US to UK
Citi's Sieg sees rich clients pivoting from US to UK

The Wall Street giant's global wealth head says affluent clients are shifting away from America amid growing fallout from President Donald Trump's hardline politics.

US employment report reactions: Overall better than expected, but concerns with underlying data
US employment report reactions: Overall better than expected, but concerns with underlying data

Chief economists, advisors, and chief investment officers share their reactions to the June US employment report.

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.