Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors affiliated with the Cetera financial group. The securities regulator FINRA recently fined three Cetera Financial Group broker-dealers $1 million, claiming that Cetera’s “supervisory systems and procedures were deficient when handling securities transactions.”
Like many advisory firms, Cetera employs representatives who are “dually registered,” meaning they are broker-dealers and registered investment advisers. In the Cetera case, their representatives managed more than $80 billion in assets across 47,000 accounts. According to U.S. Securities and Exchange Commission (SEC) exams conducted in 2013, 2015 and 2017, Cetera was “aware of the supervisory deficiencies.”
Without admitting or denying the allegations, Cetera recently signed a FINRA letter of Acceptance, Waiver, and Consent and agreed to FINRA’s sanctions, which included a censure and an agreement that they would review and revise, as necessary, systems, policies and procedures related to the supervision of dually-registered reps’ securities transactions, according to ThinkAdvisor.com.
Although the FINRA complaint did not specify what the supervisory shortcomings were, they could include selling inappropriate investments to a range of clients. One practice is called “selling away,” or marketing investments not approved or vetted by the firm. When this occurs, clients may be socked with money-losing investments, exorbitant fees, or worse, become victims of investment fraud and Ponzi schemes.
In 2019, the SEC charged that Cetera Advisors defrauded customers by “selling them overpriced fund shares that generated almost $11 million in undisclosed 12b-1 and revenue-sharing fees from funds and a clearing firm over four years.” The SEC also accused Cetera of “instructing its clearing broker to mark-up certain non-transaction service fees billed to customers by as much as 300%, resulting in another $2 million of unnecessary charges,” according to AdvisorHub.com. “The clearing firm, in one example, tacked on an extra $70 to $100 to the standard $95 -$125 of fees charged for outgoing transfers over the four-year period, the SEC alleged.”
In an unrelated case, Summit Brokerage, one of Cetera Financial Group’s six affiliates, agreed to pay $880,000 in fines and disgorgement in 2019 for failing to respond to its clearing firm’s alerts about “excessive trading by one of its brokers.”
Brokerage firms have a legal obligation to supervise their broker-advisors, who are supposed to put their clients’ interests above those of their firm. Yet brokers can run afoul of this industry rule, engaging in excessive trading to generate commissions, or selling risky investments with high fees. Although Registered Investment Advisors, or “RIAs,” have a fiduciary duty to clients – meaning they can be sued if they wrong customers — brokers fall under a less-stringent set of FINRA “suitability” rules. Nevertheless, when they put their or their firms’ interests above those of their clients, broker-advisors can be held accountable – and may be forced to compensate customers for investment losses.
If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!