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Regulation and Compliance > Federal Regulation > FINRA

LPL Fined $900K Over Failure to Send 1.6M Notices to Clients

By Janet Levaux

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LPL Financial recently agreed to pay regulators $900,000 over its failure to send and record over 1.6 million account notices to clients over a seven-year period.

This represents more than 25% of the notices it was required to issue related to accounts with suitability notices over different 36-month timeframes, according to the Financial Industry Regulatory Authority.

The firm did not deny or admit the findings of the ruling, which was issued by FINRA in late December, added to LPL’s BrokerCheck profile this week and then reported by Investment News.

“We’ve made a long-term commitment to enhancing our risk management and compliance structures,” LPL said in a statement. “We self-reported this issue to FINRA and are pleased to have resolved it.”

“A variety of systemic issues caused the failure,” the regulator stated, including the exclusion of certain accounts from 36-month mailing cycles, missing or incorrect account data, and programming errors.

LPL also failed to update systems needed to “identify a ‘hold’ recommendation as a triggering event for the 36-month period. FINRA also found the IBD did not establish, maintain and enforce a supervisory system and written procedures “reasonably designed to achieve compliance …”.

Though the firm had written procedures for the account notices, the regulator says, these processes “did not require any supervisory review” or other steps to confirm that the notices in fact had been given to clients. 

FINRA’s latest fine is one of 102 regulatory events for the IBD, which has a 267-page BrokerCheck file; details on the $900,000 resolution of the matter begin on page 22.

Earlier Matter

Two weeks ago, Massachusetts regulators demanded that LPL Financial pay $2.5 million in restitution to senior investors, along with $975,000 in fines and disgorgement of $208,000 in commissions tied to the sale of unsuitable variable annuities.

That announcement comes nearly two months after LPL Financial was charged with failure to supervise advisor Roger Salvatore Zullo in connection with the VA sales to at least 11 clients, many of whom had worked in the health care sector. Zullo was fired by the independent broker-dealer on Dec. 2.

“The facts in this case make clear that seniors and retirees continue to be prey to unscrupulous advisers targeting 401(k) and 403(b) rollover assets to gain high commissions on unsuitable products,” said Secretary of the Commonwealth William F. Galvin, in a statement.

The securities regulators’ order notes that LPL’s advisor misrepresented clients’ ages and their net worth to make them “appear more suitable and that LPL failed to detect various red flags and discrepancies which should would have prevented the harm.”

In December, the regulator’s office said that Zullo and LPL received more than $1.8 million in variable annuity commissions from 2013 to 2016. About $1.79 million of that came from commissions on the same product, the Polaris Platinum III (B Shares) variable annuity.

The Boston-based advisor “bypassed LPL’s paper-thin compliance review process for these sales by fabricating client financial suitability information, such as age and liquid net worth,” according to the 84-page complaint.

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