The Financial Industry Regulatory Authority announced Monday that it has fined LPL Financial LLC $950,000 for supervisory deficiencies related to the sales of alternative investment products, including nontraded real estate investment trusts (REITs).
As FINRA explains, many alternative investments, such as REITs, set forth concentration limits for investors in their offering documents, and certain states have imposed concentration limits for investors in alternative investments.
FINRA found that while LPL had established its own concentration guidelines for alternative investments, from Jan. 1, 2008, to July 1, 2012, LPL failed to adequately supervise the sales of alternative investments — which included REITs, oil and gas partnerships, business development companies (BDCs), hedge funds, managed futures and other illiquid pass-through investments — that violated these concentration limits.
As part of the sanction, LPL must also conduct a comprehensive review of its policies, systems, procedures and training, and remedy the failures.
“In order to sell alternative investments, a broker-dealer must tailor its supervisory system to these products,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “LPL exposed customers to unacceptable risks by not having an adequate system in place that could accurately review whether a transaction complied with suitability requirements imposed by the states, the product issuers and the firm itself – and it failed to train its registered representatives to apply all the suitability guidelines appropriately.”
In settling this matter, LPL Financial LLC neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.