LPL Financial, agreed to pay a $900K fine and to revise its policies and procedures to settle FINRA charges that the firm failed to send over 1.6 million suitability determination notices to customers.

In determining its sanctions, FINRA took into account the fact that LPL self-identified and investigated many of the systemic issues addressed in this case – by conducting an internal review and retaining a 3rd-party consultant to review the firm’s supervisory policies, procedures, and systems.

ABOUT THE RESPONDENT.  LPL Financial, a FINRA member since 1973, is headquartered in Boston, MA. LPL conducts a general securities business, with over 18,000 registered reps and about 10,500 branch office locations.

FINRA’S SPECIFIC FINDINGS.    Under Exchange Act Rule 17a-3(a)(17)(i), broker-dealers that recommend securities, among other things, must:

• Create an account record that includes, among other things, a customer's/owner’s name, annual income, net worth, and the account's investment objectives.
• Create a record that it has furnished to each customer for whom a suitability determination has been made a copy of the account record or alternative document that contains the same information.
• Provide notice to the customer within 30 days of the account opening and, as relevant here, every 36 months thereafter, provided a suitability determination has been made within the prior period.

Over a 7-year period, from 2009 to present, LPL failed to send, and to create a record that it had sent, more than 1.67 million required account notices for accounts in which a suitability determination had been made during the prior 36-month period. That figure represents 25% of the required notices that needed to be during the 7-year period.

FINRA notes that LPL Financial attributed these deficiencies to a variety of systemic issues, including: (i) the exclusion of certain accounts from 36-month mailing cycles; (ii) missing or incorrect account data; and, (iii) programming errors. The Firm also failed to update its systems to identify a hold recommendation as a triggering event for the 36-month period after 2012, when FINRA Rule 2111 established that hold recommendations are subject to suitability review.

This case was reported in FINRA Disciplinary Actions for February 2017.

For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2015045887301.