More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- 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.
Massachusetts Securities Regulator William Galvin ordered five independent broker-dealers Wednesday to pay $8.6 million in restitution to investors and fined them a total of $975,000 for improper sales of nontraded REITs.
The firms involved in the settlement are Ameriprise Financial Services, which will pay $2,592,890 in restitution and a $400,000 fine; Commonwealth Financial Network which will pay $2,074,710 in restitution and a $300,000 fine; Royal Alliance Associates, which will pay $59,000 in restitution and a $25,000 fine; Securities America, which will pay $778,400 in restitution and a $150,000 fine; and Lincoln Financial Advisors Corp., which will pay $503,940 in restitution and a $100,000 fine.
“Our investigation into the sales of REITs, triggered by investor complaints, showed a pattern of impropriety in the sales of these popular but risky investments on the part of independent brokerage firms where supervision has historically been difficult to maintain,” Galvin (right) said in a statement.
In addition to these settlements, Galvin said that LPL Financial had completed the second round of its restitution in connection to similar violations settled with the securities division in December.
With the additional amount of $2,592,150.87 from LPL, total restitution retrieved for investors in Massachusetts this year from improper REIT sales now totals more than $11 million, and fines total more than $1.4 million.
“The independent firms must spend as much manpower and resources on compliance and supervision as they do on growth and revenue if regulators are to consider this model a truly viable option for investors,” Galvin said. “The willingness of the five settling firms to correct this problem today is a small step in the right direction.”
The REIT investigation, conducted by the securities division’s enforcement section, revealed “significant and widespread problems” with the firms’ compliance with their own policies, practices and procedures rules, as well as adherence with Massachusetts prospectus requirements, which left “investors often trapped in illiquid and underperforming financial products.”
The Massachusetts securities division noted that because REITs have become a popular investment, but present risks to investors, the state has imposed a rule that an investor’s purchase of these instruments can be no more than 10% of their liquid net worth.
More on AdvisorOne: