LPL Financial Holdings Inc. (LPLA) has been slapped with a fine by the Financial Industry Regulatory Authority (:FINRA) on Monday. The Boston, MA-based financial advisor has to pay $950,000 due to its inappropriate supervisory activities pertaining to the sale of alternate forms of investment.
Though LPL Financial did not accept or deny the charges, it has agreed to pay the amount. Moreover, the company has consented to initiate a comprehensive review process to lower the risk of failures in the future.
Earlier, the manual process followed by LPL Financial to review portfolios before the tentative investments relied on faulty database, which was later replaced by an automated review system. Nevertheless, the automated system also generated flawed results as the data was based on inaccurate programming and was not updated regularly.
Investors often rely on professional advisors like LPL Financial, which help them to diversify their portfolio while minimizing risk. The concentration limits of alternate investment in a given portfolio are usually pre-set by these financial advisors as well as the state.
However, after investigations, the FINRA found that from Jan 1, 2008, to Jul 1, 2012, LPL Financial had violated the set limits. The portfolios were biased toward alternate investments, which included non-traded real estate investment trusts (REITs), oil and gas partnerships, business development companies (BDCs) and hedge funds.
LPL Financial also marketed faulty investment products that lacked liquidity. Further, supervisory activities provided by the company’s under-trained brokers misled investors and subjected them to considerable market risks.
With the recent shift in the overall investor preference, alternate form of investments are no doubt gaining popularity. However, these are risky when compared to the conventional form of investment.
Though careful regulatory scrutiny results in one-time expenses for the firms, it ensures investors security and paves the way toward a more sustainable development.
LPL Financial currently carries a Zacks Rank #4 (Sell). However, some better-ranked investment brokers include GAIN Capital Holdings, Inc. (GCAP), Investment Technology Group Inc. (ITG) and Piper Jaffray Companies (PJC). All these stocks sport a Zacks Rank #1 (Strong Buy).