Earlier this week, securities regulators in Massachusetts announced that LPL Financial agreed to pay a $250,000 fine to settle charges that some of it brokers misrepresented their qualifications for working with senior investors.
Like many states, Massachusetts has enacted rules specifically designed to give its senior citizens more protection in the areas of financial services and investment management. The misrepresentations of brokers’ qualifications broke those rules.
The problem came to light after the state’s securities regulators found one instance of overstated credentials on an LPL broker’s business cards. Cooperating with the regulators, LPL conducted its own internal investigation which identified at least 10 of the firm’s brokers who may have been using titles that were not in compliance with the Massachusetts regulations covering senior-related certifications and designations. In one case, LPL approved a broker’s erroneous business cards three separate times.
The statement from Massachusetts’ regulators laid out LPL’s problem very clearly: “Since June 1, 2007, LPL did not establish, maintain, nor enforce a procedure to review senior-specific titles for compliance with the Senior Designations Regulations in the Commonwealth.”
The larger problem for LPL Financial and every other U.S. wealth management firm is, of course, the growing complexity of the regulatory requirements they have to comply with, and the administrative burdens and costs of doing so.
At the federal level, firms answer to the SEC, CFTC, FINRA, the Consumer Financial Protection Bureau, and other agencies depending on the firms’ specific offerings of lines of business. Rules coming from these regulatory bodies have grown significantly over the past several years and continue to change.
In addition to the federal agencies, each state has its own securities and banking authorities – each with their own sets of rules. As an earlier fine of Merrill Lynch and other examples show, Massachusetts and other states are taking more aggressive approaches with their compliance enforcement.
As the largest independent broker/dealer firm in the U.S., LPL Financial supports more than 14,000 financial advisors and 700 banks and credit unions. The scope of the compliance challenge becomes clear when you think of the business processes a firm like LPL has to have in place and the amount of effort it takes to maintain regulatory compliance.
Having to run every piece of client-facing collateral – down to business cards in some cases – through four or five (or more) federal and 50 state compliance checks is a monumental task. But as these headlines remind us, failing to do so can be very costly for wealth management firms.