More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
On Wednesday, Massachusetts regulators ordered the independent broker-dealer LPL Financial (LPLA) to pay up to $2 million to investors who had bought shares of nontraded real estate investment trusts (REITs) and pay a $500,000 administrative fine.
The case, which was announced in in December, concerns close to 600 transactions of nontraded REITS that took place between 2006 to 2009, valued at about $28 million. The Enforcement Division in the Massachusetts Securities Division noted that 36 trades worth about $2.1 million were made in violation of prospectus rules and asset-concentration limitations.
In 33 of the 36 cases, advisors affiliated with LPL Financial and operating in the state broke the asset-concentration limits. In the other three cases, the sales were made in excess of net-worth restrictions, which limit investors 70 and younger to holding a maximum of 20% of their net worth in alternative investments and those older than 70 to holding a maximum of 10% of their net worth in such products.
“LPL worked cooperatively with the commonwealth of Massachusetts to appropriately resolve all of the issues raised, and we are glad to put this matter behind us,” said a spokesperson in a statement. "Under the terms of the consent agreement, certain customers, at their discretion, will have an opportunity to sell their shares of nontraded REITs to LPL or its designee for the price they originally paid. We remain committed to ensuring that our clients and the investing public are well served now and in the future.”
There are currently 13,352 FAs affiliated with LPL, which is led by Mark Casady (right).
The Massachusetts regulator says it received complaints from multiple investors—including at least one who was 70 years old at the time—who had bought shares of Inland American Real Estate Trust, Cole Credit Property Trust II, III and 1031 Exchange; Wells Real Estate Investment Trust II, W. P. Carey Corporate Property Associates 17 and Dividend Capital Total Realty.
Also on Wednesday, LPL Financial released its fourth-quarter and full-year 2012 earnings, as well as plans to restructure certain operations via outsourcing and other measures. It disclosed that it added more than 500 advisors to its network, mainly in the hybrid-RIA channel.