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LPL CEO Addresses Firm’s Compliance Woes

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LPL Financial’s Chairman and CEO told the thousands of advisors attending its annual advisor conference in Boston today to make sure they maintain the “right documentation” of their activities because LPL has “to show the regulators the quality of your work and information you have.”

At the same time he thanked the firm’s advisors for their patience as LPL addresses the risk management and compliance issues that have cost the firm millions of dollars in fines and restitution to investors in recent years.

Casady said LPL has doubled the number of staffers working in risk management and compliance to protect advisors, investors and the firm, and “is close to being done” resolving enforcement issues.

Casady noted that more than half the money it had paid out in enforcement charges related to the sales of leveraged ETFs and mutual fund shares was being returned to investors. “We’re happy to do that [but], we need your help,” he said.

LPL spent a total $36 million in regulatory charges for 2014 — four times what it incurred in the previous two years for risk management and compliance issues, according to Casady’s 2014 Letter from the Chairman.

This year the Financial Industry Regulatory Authority levied a $11.7 million charge against LPL for supervisory failures in the sale of complex products and ordered that $6.3 million be paid in restitution for failing to waive mutual fund upfront charges on certain retirement and charitable organization accounts.

In addition, New Hampshire regulators want LPL to pay $3.6 million in fines and restitution for alleged unsuitable sales of nontraded real estate investment trusts to investors, and the Massachusetts Attorney General fined the firm $250,000 for brokers using false senior-specific designations.

Casady also asked advisors for their help in addressing the Department of Labor’s proposed rules that would that would require advisors to act in the best interests of their clients as a fiduciary, which would replace the suitability requirement that they currently operate under.

“Learn more” about the proposal and about LPL’s PAC which is a “critical way to influence the Hill,” said Casady, adding that advisors can also talk with members of Congress who will visiting the conference. “The environment we’re in will be difficult for quite some time,” said Casady.

Casady, along with executives at Ameriprise, Charles Schwab, Edward Jones, Primerica, Raymond James, Stephens Inc. and Stifel, signed a letter opposing the DOL’s latest fiduciary proposal on the grounds that it would limit investors’ ability to work with financial advisors and would ultimately mean less retirement savings for Americans.

Under the latest DOL proposal, advisors could advise IRA owners and investors in small retirement plans if they commit to putting the client’s best interest first via a contract they would need to sign along with their client, clearly disclosing any conflicts of interest.

Casady told ThinkAdvisor that the current DOL proposal, for example, would prohibit investors from buying shares of business development companies (BDCs) for tax-free accounts, like retirement accounts. BDCs invest in small and middle-market companies and pay huge dividends because they must distribute almost all their taxable income and capital gains to shareholders in the form of dividends. 

Dan Arnold, LPL’s president, told the audience that there will be a new fiduciary standard and LPL and its advisors have “got to be prepared for change.”

— Check out LPL Announces Robo-Advisor Plan on ThinkAdvisor.