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January 07, 2016 at 09:14 AM
Massachusetts’ top securities regulator on Thursday charged Citizens Securities, a brokerage firm that operates within Citizens Bank, with dishonest and unethical conduct for failing to properly disclose the bank’s brokerage activities to an elderly investor.
Secretary of the Commonwealth William Galvin said the bank engaged in dishonest and unethical behavior by selling an elderly Massachusetts woman a computer-generated portfolio of funds with risks beyond her stated tolerance, and, based on advice from a Citizens Securities’ advisor, she also invested $100,000 in a riskier market-linked, six-plus year certificate of deposit.
According to the administrative complaint, Citizens Securities financial consultants operate out of Citizens Bank locations in the state.
“The Citizens Bank branch where the senior investor initially met the financial consultant did not contain adequate signage disclosing the brokerage activities occurring at the bank,” the complaint states.
The financial consultant also failed to disclose that they worked for anyone other than Citizens Bank, the complaint states.
“Banks that offer nonbank financial services have an obligation to make clear the distinction between the banking services and the other financial services provided at the same location,” said Galvin in a statement. “This is particularly important when dealing with their senior customers who may have a traditional view of banks.”
The advisor also “ignored” the investor’s stated objectives, according to the complaint, by utilizing Envestnet’s automated advisory platform, which “offers a small number of fund complexes” to choose from. “Once a fund complex is selected, the financial consultant cannot alter what the computer produced.”
Despite telling the financial consultant she had a low risk tolerance and wanted no exposure to the stock market and being rated in the investment management agreement as a “conservative” investor with low risk tolerance, the third-party computer-generated portfolio purchased by the advisor through the Envestnet platform “contained funds with aggressive investment strategies, including alternative funds, funds that purchased high-yield bonds, and an emerging markets fund.”
