Triad Advisors to Pay $194,000 Settlement for Failure to Supervise Mutual Fund Transactions
Posted on Monday, March 8th, 2021 at 7:05 pm
In February 2021, Financial Industry Regulatory Authority (FINRA) ordered Triad Advisors to pay a $150,000 fine for not adequately supervising both short-term trades involving Class A shares of mutual funds and variable annuity exchanges, as well as not making timely disclosures involving customer complaints and arbitration. Triad Advisors also agreed to repay affected clients nearly $44,000 as part of its settlement for this case.
According to FINRA, Triad Advisors’ supervisory failures took place between mid-June 2015 through sometime during the second half of 2017. Triad also fell short in filing necessary disclosures related to customer arbitrations and written customer complaints. FINRA found that Triad Advisors did not set up and keep up a reasonable supervisory system that could have allowed it to comply with the suitability requirements pertaining to short-term trading and mutual fund Class A share switching.
Mutual fund Class A shares typically charge an upfront sales fee, which includes commissions. These investments should be held for long periods of time. Regrettably for clients of Triad Advisors, brokers and advisers in the retail securities industry engaged in short-term mutual fund trades and variable annuity switching as a way to increase commissions at the expense of their clients. This “mutual fund switching” occurs when a retail investor sells mutual fund shares and places the proceeds into another mutual fund, leading to investors having to again pay a front-end load sales charge. These charges can add up, especially if mutual fund switching happens repeatedly.
FINRA found that brokers at Triad Advisors engaged in short-term buying, selling, and switching of Class A shares, in customer accounts that had the same goals of preserving and growing capital and/or earning income. However instead, the retail investors held Class A share mutual fund positions for a year or less.
Triad was owned by Ladenburg Thalmann Financial Services Inc., which was acquired by Advisor Group last year.
Triad Advisors is also accused of not reporting disclosures involving customer complaints and arbitrations in a timely manner, some disclosures being more than 600 days late in reporting that 15 customer arbitrations had resulted in settlements of $25,000 or more.
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, Triad Advisors may be liable for investment or other losses suffered by its customers.
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