Erez Law is currently investigating LPL Financial LLC financial advisors across the country regarding excessive amounts of alternative investments in client portfolios.
In October 2017, the State of New Jersey, Bureau of Securities fined LPL Financial LLC $950,000 and ordered the firm to pay $25,000 to a state investor education fund over REIT and BDC sales, claiming the firm let brokers sell excessive amounts of alternative investments as a percentage of their clients’ total portfolios. The consent order cited a breakdown in supervising its brokers concerning suitability requirements tied to sales of illiquid alternative investments.
LPL Financial LLC advisors sold non-traded alternative investments (AIs) to its clients. AIs include non-traded real estate investment trusts (non-traded REITs), non-traded business development companies (non-traded BDCs), non-traded closed-end and interval funds, hedge hinds, managed futures, private equities, and other illiquid pass through investments. Non-traded REITs and non-traded BDCs are typically illiquid, and they have no public trading market and a liquidity event typically occurs within five to seven years of an offering’s inception.
The investigation found that LPL Financial LLC advisors sold at least 95 different AT offerings to approximately 4,307 accounts held by New Jersey clients. Non-traded REITs and non-traded BDCs have higher sales commissions and offering fees that may add up to as much as 15% being paid to financial advisors from offering proceeds. The consent order explained that illiquid REITs could not exceed 10% of the investor’s liquid net worth (described as (total assets exclusive of home, home furnishings and automobiles, minus total liabilities), and they could not invest more than 10% of liquid assets in nontraded BDCs.
The investigation found that LPL Financial, LLC did not follow its own supervisory procedures for the sale of these offerings.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, LPL Financial LLC may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States for claims against LPL Financial LLC financial advisors across the country regarding excessive amounts of alternative investments in client portfolios. If you were a client of LPL Financial LLC or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.