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Regulatory Sanctions

Brokered CDs: Ya Gotta Know What You're Selling

May 4, 2018

by Howard Haykin


It’s a basic tenet that broker-dealers and their registered reps know what they’re selling. So when they don't fully know or understand what they're recommending - particularly when product or securities are not plain vanilla - customers are exposed to unforeseen investment risks and they themselves are exposed to regulatory sanctions. [All of which is avoidable.]


LPL Financial agreed to pay a $375K fine to settle FINRA charges that the firm and its registered reps failed to adequately disclose all material risks and features of brokered certificates of deposit to customers.


FINRA FINDINGS.    LPL Financial, a FINRA member since 1973, is headquartered in Boston, MA and conducts a general securities business. As of 6/30/17, LPL had nearly 18,000 registered reps in over 10,000 branches.


From 2010 to 2016, LPL sold $533 million worth of the Brokered CDs in nearly 8,000 transactions, generating over $1.6 million in firm revenues. The Brokerered CDs, which the firm characterized as non-security CDs (because they were FDIC insured instruments), had such complex features as ... (i) a step up, callable, floater or any combination thereof; and, (ii) complicated, multi-reference, variable rates that may expose purchasers to a variety of risks, including equity market volatility


That said, the Brokered CDs were sold even though ...


  • LPL registered reps had not received adequate training on all material risks and features of the Brokered CDs;


  • LPL registered reps or fixed income desk employees had not received, or did not have, meaningful access to issuer-prepared disclosure documents prior to their sales of these products; and,


  • the Firm had failed to adequately disclose all material risks and features of the Brokered CDs to customers.


►   Pursuant to FINRA NtM 02-69, the firm prepared and delivered to customers who purchased Brokered CDs a generic CD disclosure statement that described the general risks and characteristics of brokered CDs.



This case was reported in FINRA Disciplinary Actions for April 2018.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2015045703001.