The Financial Industry Regulatory Authority has fined Summit Brokerage Services over $880,000 for supervisory failures tied to automated trade alerts. This includes $558,000 to be paid to clients with accounts that had excessive trading by former advisors with the firm who are now barred by FINRA.
From 2012 to 2017, Summit — one of Cetera Financial’s broker-dealers — failed to review some trade alerts used to identify excessive trading and thus did not uncover one advisor who conducted such activities affecting 14 clients, according to FINRA, who identified the advisor as “CJ.”
CJ — who was barred in a separate disciplinary action — placed nearly 535 trades for a retired client, which meant she paid more than $171,000 in commissions over three years. “This activity produced over 150 alerts. Summit received those alerts, but no one at the firm reviewed them,” FINRA said.
The IBD, which has about 700 affiliated registered reps, agreed to pay restitution to these 14 clients to cover the commissions tied to excessive trading. The firm has 19 regulatory disclosures in its FINRA BrokerCheck record.
“In this matter, the affected customers paid hundreds of thousands of dollars in commissions as a result of the excessive trading that occurred in their accounts,” Susan Schroeder, FINRA’s president for the Department of Enforcement. “This enforcement action reflects the fact that obtaining restitution for harmed customers remains our highest priority.”
The regulatory group also found that from June 2015 through March 2018, Summit failed to reasonably supervise advisors’ consolidated reports, which give clients summaries of their assets, including those held away from the firm.
Plus, the IBD prohibited advisors from sending consolidated reports to clients unless they used an approved template. FINRA says Summit did not have “a reasonable system” to track if its reps complied.
Some 100 Summit advisors sent clients consolidated reports during this period, but just eight went through the required review and approval process. And one report misstated the value of a client’s investment.
In settling the issue, Summit did not admit or deny the charges; it consented to the entry of FINRA’s findings into its regulatory records.