LPL Financial LLC has been fined by the Financial Industry Regulatory Authority (FINRA) over supervisory system failures tied to the delivery of mutual fund prospectuses to customers. Without admitting or denying FINRA’s findings, LPL Financial agreed to pay a $400,000 fine and consent to FINRA’s findings that it failed to establish and maintain an adequate supervisory system of written procedures to ensure timely delivery of the prospectuses in question.
According to FINRA’s February 2013 report of disciplinary actions against firms and individuals, LPL was required to provide each client who purchased a mutual fund with a prospectus for that fund no later than three business days following the transaction. LPL apparently executed some 16 million mutual fund purchases or exchange transactions – several million of which required LPL to deliver a mutual fund prospectus and/or summary prospectus to the purchasing customer.
However, FINRA says that LPL did not have the proper supervisory systems in place to effectively monitor whether the prospectuses were in fact delivered to customers as required by Section 5 of the Securities Act of 1933.
Moreover, FINRA’s stated in its findings that LPL had been aware for some time that its procedures were failing to ensure the firm’s registered reps consistently obtained prospectus receipts or other evidence of delivery of the mutual fund prospectuses.