Advisor Group is a conglomerate of Independent Broker-Dealers as the result of AIG's sale of Advisor Group to Lightyear Capital, who in turn sold to Reverence Capital Partners.
Advisor Group is considered to be one of the larger conglomerations of independent broker-dealers ("IDBs") in the United States. Advisor Group is broken into separate units: Woodbury Financial Services headquartered in Minnesota, Royal Alliance in N.J., SagePoint Financial out of Arizona, and FSC Securities Corporation based in Georgia. All four entities have had regulatory histories with various state agencies, the SEC and/or FINRA.
1. Woodbury Financial ServicesThe SEC concluded it was in the interest of the general public that proceedings be brought against Woodbury for insufficient disclosures and the breach of fiduciary duties associated with "A" or "B" class selection, by agents, in regards to mutual fund sales. Attendant to those issues was the receipt of fees above what would normally be garnered by the advisors in question.
The SEC concluded that advisors employed by Woodbury Financial Services either recommended or purchased for advisory customers B-shares that levied 12b-1 fees in place of less costly options of the identical family of funds. Woodbury elected to omit on its official document known as the ADV its inherent conflicts associated with such fees. According to the SEC, Woodbury Financial also improperly garnered or the client improperly paid more than was necessary.
The brokerage firm consented to the SEC's findings and agreed to no longer commit violations. As a result, it was censured and agreed to a fine of $1,028,218.50 and to also pay interest of $142,809.81.
2. Royal AllianceFINRA investigated Royal Alliance, which neither admitted nor denied the conclusions, regarding its failure to offer discounts on sales charges to consumers who qualified for such reductions. The firm's misdeed involved the marketing and sale of Unit Investment Trusts (UITs). The result was that consumers paid more in "commissions" for the UITs which was unnecessary given available discounts.
FINRA stated that Royal Alliance was required to repay clients that were impacted. FINRA further concluded that the brokerage firm neglected to create, institute, and effectuate written supervisory procedures calculated to ensure all applicable clients received discounts on Unit Investment Trust transactions.
Moreover, FINRA asserted that the firm neglected to supervise its agents properly and that it failed to identify "Red Flags" in client accounts. The firm then attempted to institute certain parameters to address the above issues but did so in a poor fashion as the measures were ineffective. Other issues included a lack of proper protocols to ensure agents provided clients with a prospectus for the above-described investments.
Royal Alliance was fined $225,000, and it was mandated to provide proof that it repaid clients so affected. Royal Alliance was also censured.
3. SagePoint FinancialFINRA investigated SagePoint Financial and determined that it neglected to initiate, adhere to, and prosecute a system of supervision, through written supervisory procedures, designed to oversee suitability issues of its agents.
Specifically, the focus of FINRA's efforts was on SagePoint Financial agents and their recommendations regarding premature rollovers of Unit Investment Trusts. The conclusions asserted that the written supervisory procedures omitted the discussion of premature rollovers and/or transfers from similar series.
Moreover, there was a lack of guidance for individuals in charge of supervision and a lack of direction in monitoring conduct for abuses specific to the above described premature transfers. SagePoint also did not utilize electronic alerts or other systems for purposes of oversight to detect potential unsuitability regarding the issue of premature rollovers.
Likewise, the brokerage firm's review of Unit Investment Trust purchase/sales vis a vis its data entry structure neglected to focus on issues of suitability. Accordingly, it did not identify agents who made recommendations that were improper relative to early rollovers of Unit Investment Trusts.
The end result was that clients so affected, incurred over $1,315,373 in unneeded charges that simply would not have occurred if proper protocols were utilized. FINRA elected to censure SagePoint Financial, it also levied a fine of $300,000, and demanded repayment of the above $1.3 million to impacted clients. As per usual, SagePoint agreed to the finding without accepting liability.
4. FSC SecuritiesFINRA went after FSC Securities and it consented to conclusions that it transacted about 6,500 purchases of non-traditional ETFs.
Non-traditional ETFs are usually defined as those that are leveraged, meaning assets are borrowed to increase purchases within the parameters of that particular fund. It could also apply to inverse funds, meaning that the manager is essentially shorting the assets within the portfolio, which usually implies the use of leverage.
The conduct occurred in about 1,400 client accounts without the maintenance of a reasonable system of supervision. This included a determination that there was a lack of written protocols maintained to ensure that clients were protected in line with FINRA's rules. FINRA further concluded that non-traditional products have unique risks that are not present in traditional closed-end funds.
Moreover, FSC's supervisory complex was insufficient to process the unusual traits and risks associated with non-traditional products. The transactions in question equated to about $92 million and created commissions in the range of $603,000. FINRA went on to say that agents were allowed to make recommendations without the benefit of written protocols addressing the non-traditional products.
FINRA admonished FSC Securities for the lack of an electronic alert system that addressed the unique risks of these products and its failure to monitor client accounts in this regard. Findings further elucidated that agents made recommendations to clients without fully understanding the unusual traits/risks associated with leveraged/inverse investments. This included sales to clients with conservative or moderate profiles and/or the elderly.
FSC received a fine of $100,000 and was censured. FINRA also ordered it to repay affected clients an amount in excess of $492,000.
The Securities Fraud Law Firm of Shepherd Smith Edwards & KantasIf you were a victim of any of the firms affiliated with Advisor Group, feel free to contact the securities lawyers at Shepherd Smith Edwards & Kantas.
We have, through the years, filed cases against the above entities, or their predecessors, for unsuitable recommendations to clients. Many agents employed by Advisor Group are not supervised on-premise. As such, clients can be taken advantage of by brokers' improper actions. Our firm has experience with UITs and non-traditional ETFs. Please contact us for a free consultation.