LPL Financial Fraught with Allegations of Supervisory Failures

Advisor Independence Achilles Heel for Gigantic Investment Organization

LPL Financial is one of the nation’s largest broker/dealer investment firms, yet it is not an investment firm in the traditional sense. Whereas most investment firms offer specific investment vehicles, LPL Financial’s business model differs from many other companies in the investment industry. Formed in 1989 as the result of a merger of two brokerage firms, Linsco and Private Ledger, LPL Financial is actually an aggregation of investment advisors which exceeds 13,000 employees. As a result, LPL Financial has the responsibility to adequately supervise those advisors to ensure that they are not only following the best investment practices to benefit their clients, but that they are also following those practices which are mandated by state laws, federal laws, and the rules set forth by regulatory agencies.

When you consider the number of regulatory actions against LPL Financial in recent years, it becomes clear that upholding these supervisory obligations seems to be an ongoing issue for the company. This is not surprising when you consider that many of the advisors which it licenses are in small or individual offices located across the United States. Just this year alone, the Financial Industry Regulatory Authority (FINRA) fined LPL Financial with nearly $3 million in penalties as a result of the company’s faulty “three-tiered supervisory system”. This system was supposed to ensure accuracy in the processing and reviewing of their alternative investments, and that its representatives and supervisory personnel were adequately trained. Unfortunately, this system broke down on every level.

One such example occurred with former registered representative, Michael Taillon who operated solely out of an office based in Virginia. An ongoing arbitration claim states that Taillon violated FINRA regulations pertaining to a Notice to Members which correlates to the sale of non-traditional, leveraged exchange traded funds (ETFs). This arbitration stems from a FINRA claim which was filed in late 2013. The arbitration claim states Taillon made advisements that were unsuitable which included the following ETFs:

  • Rydex Inverse S&P 500 Strategy
  • Rydex S&P 500
  • ProShares Short S&P 500
  • ProShares UltraShort Real Estate
  • ProShares UltraShort Oil & Gas
  • ProShares UltraShort Financial ProShares UltraShort Basic Materials
  • ProShares Ultra S&P 500
  • ProShares Ultra Basic Materials
  • ProShares Ultra QQQ

Subsequently, Taillon’s registration with LPL Financial was dissolved in January of 2014.

This is just one illustration of the failure on the part of LPL Financial’s supervisory duties. In addition to the multitude of FINRA actions, the Massachusetts Securities Division filed an administrative complaint against the company for allowing its advisors to sell real estate investment trusts (REITs) in a manner that breaches not only the state’s procedures, but also those of LPL Financial’s own procedures. With the inherently high risk associated with REITs, it is especially important that advisors explain any and all risks that these investments pose to their clients.

With investment advisors’ potential commissions just beginning at 6%, it is easy to see how these advisors can become over-zealous in recommending certain investments to clients. That does not, however, preclude them from having to understand and follow the rules and regulations that govern which investments they favor. It is the fiduciary responsibility of each investment firm and their advisors to recommend only those investments for which their clients have a risk-tolerance. Failure to do so constitutes breach of fiduciary duty and negligence on the part of both the advisors and the investment firm that oversees the practices of those advisors.

The Blum Law Group specializes in helping people who have been victimized by brokers or investment firms. If you believe you have suffered financial losses as a result of the actions of LPL Financial, LLC; Mr. Taillon; or any other LPL investment advisor, please give us a call at 877-STOCK-LAW for a free consultation.

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