Recently, the Utah Securities Division announced substantial fines against three brokerage firms: LPL Financial (CRD#: 6413), Cetera Advisor Networks (CRD#: 13572), and CUSO Financial Services (CRD#: 42132).
According to reporting from Bank Investment Consultant (BIC), the three brokerage firms were collectively fined $2.25 million for allegedly violating state rules regarding how registered brokerage firms can interact with credit unions through so-called ‘networking agreements’.
Brokerage Firm Misconduct: Allegations of Misleading Sales and Advertising Tactics
The Utah Securities Division reports that these three brokerage firms used materially misleading sales and advertising materials. In effect, the materials made it appear as though these firms were providing investment services that were part of the credit union. The complaint alleges that these firms misled investors in a wide range of different ways, including:
- The branding of their services;
- The language used on sales materials;
- The design of their representatives’ business cards; and
- The manner in which brokers answered their phones.
Under regulations promulgated by the FINRA, the SEC, and the state of Utah, broker-dealers have a legal duty to ensure individual investors have a clear understanding of the difference between financial products and financial services that are being offered by a credit union and those that are being offered by a broker-dealer. This is a very important distinction, as products from credit unions are insured by the National Credit Union Administration (NCUA). However, financial products and financial services offered by FINRA broker-dealers offer no such insurance.
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