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Advisors beware: Securities regulators ramp up enforcement

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Financial advisors often adopt an ‘it won’t happen to me’ posture when it comes to getting caught violating state (or federal) regulations.

However, a new report from the North American Securities Administrators Association (NASAA) highlights the fallacy behind that thinking.

According to its 2016 Enforcement Report based on 2015 data, based on responses from 52 state securities jurisdictions, NASAA conducted 4,487 investigations in 2015 (the latest year for which data is available) and took 2,074 enforcement actions These actions led to more than $538 million in restitution to investors, fines of $230 million, and criminal penalties imposed of 1,282 years.

In addition to those outcomes, NASAA aggressively removed bad actors from the financial-services industry, withdrawing 2,990 securities licenses and either denying, revoking, suspending, or placing conditions on 738 additional licenses.

What’s more, NASAA says it continued to root out fraud at the state level. In 2015, the most common fraudulent investment schemes involved real estate or oil and gas ventures. It also targeted LPL Financial’s sale of non-traded Real Estate Investment Trusts (REITs), which resulted in settlements in numerous jurisdictions.

According to the report, NASAA regulators pursued actions against companies that improperly sold variable and indexed annuities, hedge funds, life settlements/viaticals, and structured products, among others.

A common theme of many NASAA enforcement actions was the use of the Internet to defraud consumers, as well as scammers going after people on the basis of their race, religion, age bracket, profession, or other identifiable feature. A special focus was identifying and bringing to justice fraudsters who preyed on vulnerable adults such as seniors, who represented nearly one-third of all investigations.

Finally, the NASAA report revealed that in 2015, its member regulators went after more registered securities professionals in enforcement actions (812) vs. non-registered actors (791). It attributed this historic shift to enhanced regulatory scrutiny among advisors and firms already on the regulatory radar as opposed to the pursuit of violators preying on consumers from the outside.

The bottom line from the National Ethics Association: financial advisors of all license types should not assume they are immune from regulatory scrutiny. Instead, they should make a strong effort to remain in compliance with all state and federal regulations pertaining to their license. This will not only prevent the negative consequences of getting caught—legal costs, negative publicity, and an eroded professional reputation — it will also reduce the chances of becoming embroiled in damaging E&O insurance disputes. For further information on enhancing your compliance efforts, check with your firm’s compliance department or visit the E&O HQ at

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