The Financial Industry Regulatory Authority (FINRA) fined Securities America firm $1 million and ordered the company to pay $2 million in restitution to its customers.
The fine and order came after FINRA found that the company failed to reasonably supervise Class A mutual fund recommendations. This resulted in customers paying unnecessary fees through recommendations that were potentially unsuitable or not in customers’ best interest.
“Firms have a fundamental obligation to supervise their representatives’ recommendations and ensure they serve their customers’ best interests,” Bill St. Louis, executive vice president and head of enforcement at FINRA, said. “When firms fail to supervise mutual fund recommendations, investors pay the price through unnecessary fees and charges. This $2 million in restitution will make affected customers whole, but prevention should always be the priority.”
Between January 2018 and June 2024, when it became part of Osaic Wealth, Securities America effected the purchase of approximately $3.8 billion in Class A mutual fund shares. However, FINRA said the firm failed to implement a system, including written policies and procedures, reasonably designed to supervise recommendations of Class A shares for compliance with FINRA Rule 2111 (Suitability) and Regulation Best Interest’s Care Obligation. The latter requires broker dealers to exercise reasonable diligence, care and skill when making recommendations to retail customers.
More specifically, Securities America’s supervisory system was not reasonably designed to detect switches and short-term sales. Even when the firm identified such trades, FINBRA said the firm failed to reasonably review them to ensure that representatives had reasonably considered fees and commissions.
As a result, the firm failed to reasonably supervise recommendations of more than 1,000 Class A mutual fund switches and some 2,000 short-term sales that were potentially unsuitable or not in the customer’s best interest. In total, these trades caused customers to pay $2,019,040 in commissions and fees, which will now be returned to them as a result of this action. This matter originated from a FINRA cycle examination.
Securities America consented to the entry of FINRA’s findings, without admitting or denying the charges.