RBC Capital Markets Settlement With FINRA Includes a Fine and Restitution
RBC Capital Markets has reached an agreement with FINRA in which the broker-dealer will pay $1M to resolve allegations of overconcentration in customers’ accounts involving high-yield bonds. Without denying or admitting to the self-regulatory organization’s (SRO’s) findings, RBC consented to a censure, a $550K fine, and more than $456K in restitution.
According to FINRA, the brokerage firm did not identify over 100 client accounts with conservative profiles that should have been reviewed for a possible unsuitable concentration of high-yield bonds.
The SRO also contends that from July 2013 through June 2016, the firm neglected to have the kind of working supervisory system that could comply with FINRA and MSRB (Municipal Securities Rulemaking Board) rules related to financial advisors’ recommendations of high-yield municipal and corporate bonds.
FINRA also found that although RBC Capital Markets realized that its alerts for identifying the potentially unsuitable concentration of high-yield bonds were defective as far back as September 2015. It did not make the necessary fixes until July 2016.
What are High-Yield “Junk” Bonds?
These are bonds that have received low credit ratings, which is a sign that they are at higher risk of defaulting. They are unsuitable for many kinds of investors who wouldn’t be able to handle “substantial” risk impacting their accounts.
It is important that brokers only recommend high-yield bonds after determining that they are suitable for a customer given the latter’s investing profile, risk tolerance level, and financial goals.
FINRA said that among the more than 100 customer accounts with conservative profiles that RBC Capital Markets did not review, there were accounts that had over six times the thresholds established by the broker-dealer.
This included a customer, over age 100, that was the trustee of two accounts, both of which had conservative investing goals. Yet, by June 2015, 100% of one trust account and 86% of the other trust were high-yield municipal bonds.
Another conservative investor, over age 70, had an account that was 92% invested in high-yield bonds. And yet, because RBC’s alerts weren’t working properly, the firm did not review these accounts for overconcentration.
What is Overconcentration?
Concentrating a customer’s portfolio in too much of one particular kind of investment can prove very risky, especially if that product should fail or drop in value.
Unfortunately, overconcentration happens way too often whether because of broker misconduct, error, mismanagement, or negligence. When this happens the losses for an investor can be severe.
It is important to note that concentration can be a proper and suitable investment strategy for certain investors, such as certain high-net-worth individual investors and institutional investors. However, this is usually not the case for most retail investors, older investors, inexperienced investors, and other conservative investors.
Experienced Securities Attorneys Fighting for Victims of Overconcentration
If you think your investment losses may be due to overconcentration, contact us at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) today. We have experience successfully representing investors in recovering losses from the financial advisors and broker-dealers who unsuitably invested their funds. Call SSEK Law Firm at (800) 259-9010 today.