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Stockbrokerage Financial Advisor Firms Are Failing to Supervise Rogue Brokers, Says Massachusetts Regulator William Galvin

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37571216_sStockbrokerage Financial Advisor Firms Are Failing to Supervise Rogue Brokers, Says Massachusetts Regulator William Galvin.

Only 6% of reps with checkered backgrounds were placed on heightened supervision by their broker-dealers, according to a new report.

Brokerage firms and financial advisor firms that have stockbrokers and financial advisors with Finra disciplinary actions and prior arbitration claims are failing to properly supervise them, and could be hurting investors because of their lax self-policing standards, according to findings from a recent sweep conducted by the Massachusetts Securities Division.
The division, led by Secretary of the Commonwealth William Galvin, recently conducted an examination of 241brokerage firms working in Massachusetts.  The findings of the sweep,  indicate few of these brokers were placed on heightened supervision, thereby exposing investors to potential harm at the hands of these rogue brokers, according to the report.
“While disclosure incidents can run the gamut of allegations, and not all would necessarily mandate being place on heightened supervision, the numbers my office found raise a strong presumption that certain firms continue to hire bad brokers but are unwilling to take on the obligation of zealously monitoring their interaction with customers,” according to Mr. Galvin.
The report’s release coincides with a broader crackdown on rogue brokers by the Securities and Exchange Commission and its broker-dealer watchdog, the Financial Industry Regulatory Authority Inc.
Finra has increased its use of data to identify brokers with a record of compliance problems and who keep resurfacing at new firms, and is warning brokerages not to rehire them.
The Massachusetts sweep, which scrutinized the two-and-a-half-year period between January 2014 and June 2016, found that while almost every brokerage had written policies vetting hired reps, more than 18% of those hired — 8,584 brokers — had disclosure incidents.
In what the report calls its “most troubling finding,” of those brokers, only 6% were placed on heightened supervision — meaning 94% with disclosure incidents didn’t receive heightened monitoring by their new employers.
As a sign of things to come, in early December, Mr. Galvin sued LPL Financial, the nation’s largest independent brokerage firm, for “paper-thin compliance” regarding supervision of a top-producing broker who is alleged to have sold retirees unsuitable variable annuities.
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