Category Archives: Broker/dealer

Investors in some states have a lot to learn when it comes to investing and financial literacy, says a recent study by the Financial Industry Regulatory Authority (FINRA).

According to the study, residents of California, Massachusetts and New Jersey are the best at handling their money. By comparison, individuals in Mississippi, Arkansas and Kentucky rank at the bottom of the list.

“This survey reveals that many Americans continue to struggle to make ends meet, plan ahead and make sound financial decisions – and that financial literacy levels remain low, especially among our youngest workers. No matter how you slice and dice it, this rich, new data set underscores the need for us to continue to explore innovative ways to build financial capability among consumers,” said FINRA Foundation Chairman Richard Ketchum.

Overall, the number of respondents demonstrating a high degree of financial literacy – meaning they correctly answered four or five of the five questions about financial knowledge – dropped to 38% in 2012, from 42% in 2009.

About half of survey respondents said they worked with a financial professional in the past five years. However, they still lacked knowledge of key financial market concepts, the study found.

For example, only 28% correctly answered a question about the movement of bond prices, compared with interest rates. Less than half correctly answered a question about the risk of a single company stock versus a diversified mutual fund.

Study responses were collected through an online survey of 25,509 American adults (approximately 500 per state, plus D.C.), over a four-month period from July to October 2012. The sample used in the study was weighted by age, gender, ethnicity and education. The full data set, questionnaire and methodology are available here.

A former adviser affiliated with LPL Financial LLC has been charged by the Securities and Exchange Commission (SEC) of defrauding investors and stealing $2 million from at least six clients.

According to the civil complaint, former LPL adviser Blake Richards misappropriated client money that “constituted retirement savings and/or life insurance proceeds from deceased spouses.”

In once instance, Richards allegedly tried to gain an investor’s trust by delivering pain medication during a snowstorm to a client’s husband who had been diagnosed with terminal pancreatic cancer, according to the SEC complaint.

As reported May 23 by Investment News, the charges against Richards follow recent negative news about LPL. Earlier this week, the Financial Industry Regulatory Authority (FINRA) fined LPL $7.5 million in connection to 35 separate e-mail system failures.

One day later, Secretary of the Commonwealth of Massachusetts William Galvin announced that LPL had been ordered to pay $4.8 million in restitution to investors over improper sales of non-traded real estate investment trusts (REITS).

LPL is not named in the recent SEC complaint against Richards.

According to FINRA’s BrokerCheck Web site, Richards worked as an LPL broker from May 2009 until May 2013.

Reportedly, when investors approached Richards with funds to invest from a retirement account rollover or proceeds from a life insurance policy, he allegedly instructed them to write out checks to an entity called “Blake Richards Investments” or “BMO Investments.”

Alternative investments like non-traded REITs and private placements have levied financial havoc on many investors in recent years. Now, facing pressure from regulators, some broker/dealers are making changes to how they sell these kinds of products.

Earlier this year, VSR Financial Services, Berthel Fisher & Co. Financial Services and the Cetera Financial Group Inc. announced revisions to their policy guidelines and procedures regarding sales of certain alternative investments.

As reported May 16 by Investment News, such action could lessen the amount of alternative investments that clients can hold in their accounts at any one time.

The changes particularly impact illiquid alternative investments. Because these types of investments are not traded on a national securities exchange, investors have little or no ability to sell their shares if they need immediate access to cash.

The changes that some B-Ds are making in regards to illiquid investments are not entirely unexpected. The Financial Industry Regulatory Authority (FINRA) has heightened its scrutiny of these products in recent years, issuing several bulletins warning investors about the hidden risks they may pose.

Recent news concerning alternative investments occurred in February 2013, when broker/dealer LPL Financial LLC agreed to pay restitution of $2 million to Massachusetts investors who bought seven non-traded REITs, as well as a $500,000 administrative fine. In December, Massachusetts Commonwealth Secretary William Galvin had charged LPL with failure to supervise registered representatives who sold the non-traded REITs in an alleged violation of both state limitations and the company’s rules.

For now, some broker/dealers, including VSR, are scaling back the amount of illiquid alternative investments that clients can hold in their accounts, particularly the elderly, said Don Beary, VSR chairman, in the Investment News article. “FINRA in the past year did a ‘senior sweep,’ and we’ve had guidance that we have to be careful about what seniors buy,” he said.

Maddox Hargett & Caruso continues to investigate sales of non-traded REITs on behalf of investors. If you believe you suffered losses in a non-traded REIT investment because your broker/dealer or financial adviser misrepresented certain facts, please contact us.

Choosing a financial adviser is a big deal. These individuals are responsible for giving you advice about how to save, invest, and grow your money. A good financial adviser can put you on the path to a solid financial future, while others may steer you in the wrong direction.

As with anything that relates to your investments, it’s important to thoroughly do your homework so that you choose a financial planner who is right for you and your financial future.

Anyone can advertise themselves as a financial adviser.  But simply saying you are a financial adviser doesn’t make you a legitimate expert. One of the most reliable credentials to look for is the CFP designation (which stands for certified financial planner). CFP means a person has successfully passed a rigorous test administered by the Certified Financial Planner Board of Standards.

Other tips to consider when choosing a financial planner is to ask about the adviser’s pay structure.  In most cases, investors should avoid commission-based only advisers because these individuals may not always have a client’s best interests at heart. Rather, some may push certain financial products that benefit them via hefty commissions.

Conduct personal interviews with three or four prospective financial planners. Have a list of questions ready, including inquiries about the adviser’s investing philosophy. Be sure to ask  if the adviser has ever faced an investigation by regulatory groups such as the Financial Industry Regulatory Authority or the Securities and Exchange Commission (SEC). You can check the compliance record of advisers and firms here.  Also, ask for references of current clients whose investment goals are similar to yours.

Be on the lookout for red flags. This includes marketing hype by advisers who tout so-called investment guarantees. No one can make a guarantee when it comes to investments. Every investment contains some level of risk. If a financial adviser says he or she can outperform the market each and every time with a particular investment, it’s probably best to walk away.

The SEC offers several resources and additional questions to ask about selecting financial advisers. You can view that information here.

A PBS documentary had harsh words for financial advisers, blaming them for many of the struggles facing Americans today as try to save for their retirement. In The Retirement Gamble, Frontline correspondent Martin Smith investigates what happened to retirement in America and the role that financial services companies may be playing in draining your savings year after year.

Among other things, producers of The Retirement Gamble cite fees that financial advisers charge investors in their 401(k)s – largely made up of mutual fund fees and commissions – as one of the biggest obstacles behind the retirement savings crisis.

The documentary also criticizes advisers for boosting their own income by steering investors into high-fee investments like actively managed mutual funds. In an April 24 article by Investment News, Helaine Olen, author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, says the term “financial adviser” means almost nothing in today’s investing world. “It could be a financial planner,” she says in the article. “Or it could be a broker who is a salesman.”

Indeed, a recent AARP study showed that 70% of mutual fund savers were unaware that they were paying any fees at all.

Teresa Ghilarducci, an economist at The New School, was equally condemning of financial services representatives and their firms. “Basically, your guy is out for himself to maximize his sales, and the way he does it is to be loyal to the mutual fund,” she said in the documentary. “They try to sell you the most profitable products.”

More on The Retirement Gamble can be found here.

Earlier this week, state securities regulators made an appearance on Capitol Hill in an effort to gain support among lawmakers for restricting or ending the use of mandatory arbitration clauses in client contracts with brokers. As reported April 17 by Investment News, one person who needs no convincing on the matter is Securities and Exchange Commissioner (SEC) Luis Aguilar.

During a speech at the North American Securities Administrators Association conference on Tuesday, Aguilar called for an end to mandatory arbitration, saying that he believes the SEC needs to be “proactive” in this important area.

“We need to support investor choice. Allowing investors to take their legal claims to court would “enhance investor protection and add more teeth to our federal securities laws,” Aguilar told the audience.

The same message ­- that investors should be allowed to go to court to settle a grievance against their broker – was reiterated by about 17 NASAA members when they recently met with more than 40 lawmakers.

The Dodd-Frank financial reform law authorizes the SEC to prohibit or curtail compulsory arbitration for clients of brokers and investment advisers. So far, the SEC has not yet addressed the arbitration provision.

“The time is ripe for the commission to act under [Dodd-Frank] to protect the investing public and prevent the further abuse of forced arbitration contracts. This is at the forefront of our agenda,” said Bob Webster, NASAA spokesman, in the Investment News story.

The issue of compulsory arbitration came to a head earlier this year following a ruling by a FINRA arbitration panel who said that they could not stop Charles Schwab Corp. from using the arbitration agreements to prohibit clients from engaging in class actions.

Arbitration backers say that the process is more efficient and less costly than a court proceeding. Opponents argue that class actions provide a better venue than arbitration for disputes involving a small amount of money. The SEC’s Aguilar noted in his speech on Tuesday that clients should not to be forced to give up their access to judicial redress.

“Investors should not have their option of choosing between arbitration and the traditional judicial process taken away from them at the very beginning of their relationship with their brokers and advisers,” Aguilar said. “A client’s right to go to court to recover monetary damages is an important right that should be preserved and kept in the client’s toolkit.”

For some ex-spouses, the marriage vow of “for richer or poorer” weighs heavily on the side of poorer. More cases are coming forth involving ex-spouses stealing from each other through a brokerage account. Recently, Maddox Hargett & Caruso, P.C. represented a client whose ex-husband falsified various documents and transferred funds from several Wells Fargo accounts into several E*Trade accounts without his former wife’s knowledge or consent.

An arbitration panel of the Financial Industry Regulatory Authority (FINRA) ruled in favor of the victim, holding Wells Fargo and E*Trade liable to her for more than $80,000 in compensatory damages.

In addition, the FINRA arbitration panel ruled that Wells Fargo Advisors and E*Trade Securities had to pay the investor $11,960 in interest, as well as $22,500 in attorney fees and $4,500 in arbitration hearing session and fees.

FINRA’s decision sends a clear and strong message that if one spouse “steals” money from another spouse’s brokerage account, the brokerage firm involved could, in fact, be held liable for any financial losses that may occur as a result.

It seems the bad news just keeps getting worse for longtime real estate dealer Tony Thompson. Now, Thompson’s non-traded REIT – the TNP Strategic Retail Trust – is cutting its dividend.

In a recent filing with the Securities and Exchange Commission (SEC), the REIT cited short-term liquidity issues, including an accelerated maturity date of loans, lender fees and the cost of potential litigation with lenders, as the cause behind the halt in distributions.

As reported March 19 by Investment News, the loan compliance issues with its lenders means the TNP Strategic Retail Trust will not pay a dividend in the first quarter of 2013 and may not pay any type of distribution for 2013.

“Although our board of directors will continue to evaluate our ability to resume paying distributions, given the uncertainties noted, stockholders should not assume a resumption of distribution payments during the remained of 2013,” the company said in the SEC filing.

It was only a few short months ago that Thompson was touting TNP’s rising value to potential investors. In January, Thompson sent a note to broker/dealers declaring that the net asset value of the TNP Strategic Retail Trust was 6% higher than its share price. That kind of discrepancy between a REIT’s selling price and its NAV could be dilutive to shareholders and provide brokers with a strong sales pitch to potential investors.

That’s not the only problem facing Thompson. In January, after raising money in 2008 and 2009 for Thompson National Properties LLC, the company defaulted on $21.5 million of the private notes from that offering. Last month, the Financial Industry Regulatory Authority (FINRA) announced it was investigating Thompson and his broker/dealer, TNP Securities LLC, for failing to turn over documents, thus potentially violating FINRA rules.

Failed deals in non-traded real estate investment trusts (REITs) and private placements have plagued more investors in recent years, with problems ranging from suspension of share redemptions to inaccurate valuations to outright fraud. Such issues have garnered the attention of the Financial Industry Regulatory Authority (FINRA), which is now investigating real estate developer Tony Thompson and his broker/dealer, TNP Securities LLC, for allegedly failing to turn over certain documents to FINRA.

By failing to turn over documents about his business to FINRA, Thompson is in violation of industry rules that require firms and individuals to produce information when asked to do so by FINRA.

As reported March 12 by Investment News, FINRA initially made inquiries regarding the documents two months ago. At the time, Thompson was attempting to “goose sales for a non-traded real estate investment trust, the $272 million TNP Strategic Retail Trust Inc.”

During that same month, Thompson sent a note to broker/dealers hawking the TNP Strategic Retail Trust and proclaiming that its net asset value was 6% higher than its share price. Specifically, Thompson’s note read: “Closing Feb. 7, 2013! Necessity retail: Now is the time!”

As the Investment News article points out, discrepancies between a REIT’s selling price and its NAV could be dilutive to current shareholders and provide brokers with a pitch laden with urgency to sell.

That’s not the only problem on Thompson’s plate, however. He’s also dealing with huge financial troubles, including the default on $21.5 million of private notes that he sold in 2008 and 2009 to raise money for Thompson National Properties LLC.  Last year, that venture suspended interest payments to investors in a private placement – i.e. the TNP 12 Percent Notes Program – that was designed to raise capital for the firm. Many of the investors in the TNP 12 Percent Notes Program reportedly were elderly, retired or conservative investors living on fixed incomes.

According to a July 10, 2012, article by Investment News, 22 independent broker/dealers had agreements to sell the notes, which required a minimum investment of $50,000. Brokers earned a 7% commission on sales of the notes, according to a filing with the Securities and Exchange Commission (SEC).

If you invested and suffered financial losses with Tony Thompson, the TNP 12 Percent Notes Program, Thompson National Properties LLC, TNP Securities, or TNP Strategic Retail Trust, contact us to tell your story.

The past year has been a good one for big retail brokerages, but many brokers aren’t viewing the increased revenues as a sign to sit back and relax. Instead, some say they’re feeling pressure to keep those revenues up by touting investments with higher commissions and fees. And for investors, that could mean added risks.

As reported Feb. 25 by the Wall Street Journal, more of the larger retail brokerage firms now have an eye on promoting financial products that generate greater profit margins. According to a broker at UBS Wealth Management Americas in New York, there has been a big push to put client money in alternative investments, as well as the lending business.

“Alternative investments are some of the biggest profit generators for the firm,” he said in the WSJ story. Asset-based lines of credit – a relatively easy way to earn a few percent in interest – also are popular.

Part of this newfound encouragement is tied to the way in which UBS pays its brokers. As reported in the Wall Street Journal article, UBS recently fine-tuned its basic formula for paying brokers a percentage of the revenue they produce to include incentives for selling products such as mortgages and credit lines. The changes went into effect in 2013.

Similar formulas, or pay grids as they’re called, are used at Morgan Stanley Wealth Management and Merrill Lynch, which also reward bonuses to brokers with growing loan-based business.

According to the WSJ story, financial advisers at Merrill Lynch also feel the continued push to get more assets into value-based models – i.e. those that charge clients a fee for advice and a financial plan.