In January 2024, LPL Financial was fined $5.5 million by FINRA and ordered to pay over $650,000 in restitution to customers for several supervisory failures and sales violations. These issues included LPL allowing unsuitable trades and charging excessive fees without proper oversight. This is only the latest in a long line of regulatory actions against LPL, a firm that has repeatedly been fined for failures in its supervisory practices.
LPL FINRA Violations Lead to Fine
One of the most notable violations involved LPL’s failure to supervise transactions related to Class C and Class B mutual fund purchases. These trades were not properly reviewed, leading to customers incurring nearly $550,000 in excessive charges. LPL also sent more than 11,000 letters to customers that misstated the fees involved in mutual fund and Unit Investment Trust (UIT) transactions. For instance, LPL informed nearly 10,000 customers that fund switches would have zero sales charges, but these transactions did result in charges.
This kind of misinformation extended further. In one case, a customer was told they would be charged a 1% sales fee, but the actual charge ended up being more than double. This lack of transparency in fee disclosures highlights a significant breach of trust between LPL and its clients.
The violations didn’t stop there. LPL also failed to address overconcentration in certain customer accounts, particularly those invested in Business Development Companies (BDCs). Some customers, with moderate or low risk tolerance, were exposed to high-risk investments at inappropriate levels. This resulted in nearly $75,000 in realized losses for these customers.
Unfortunately, this is not an isolated incident. LPL Financial has a history of supervisory failures. In 2019, they were fined $6.5 million after a broker was able to run a Ponzi scheme that defrauded 40 investors. The same broker misappropriated $4.9 million, much of it from seniors planning for retirement. In 2020, LPL was again in trouble after unsuitably selling non-traded real estate investment trust (REIT) products to elderly clients by misrepresenting their financial situation.
LPL Investors Can Seek Counsel
If you’re an LPL customer who has been impacted by unsuitable trades, hidden fees, or other securities violations, it’s essential to take action.
Bakhtiari & Harrison is an AV-rated, experienced law firm focused on the worldwide representation of clients in complex arbitration, litigation, and related legal services in securities industry matters. The firm’s partners have extensive experience in securities, employment and regulatory matters. Our focus is on delivering strategic and creative client-centric solutions.
We represent high net-worth individuals, institutions, and hedge funds in securities arbitration and litigation claims before FINRA (Financial Industry Regulatory Authority), AAA (American Arbitration Association), other arbitration providers, and state and federal courts. FINRA arbitration is a method for resolving disputes between investors and securities firms, overseen by the Financial Industry Regulatory Authority (FINRA).
It provides a quicker, less formal alternative to court proceedings. In this process, an impartial panel of arbitrators evaluates the evidence and issues a binding decision. Unlike mediation, where parties collaborate to reach an agreement, arbitration concludes with a final ruling. This approach is often used to address issues such as broker misconduct, inappropriate investment advice, or contractual disagreements. Most investors and firms are bound to arbitration through pre-dispute clauses in their account agreements. The process is structured to be unbiased, allowing both sides to present their arguments. FINRA arbitration also offers privacy and is generally more cost-effective than going to court, making it a favorable option for those seeking to resolve financial disputes efficiently.