Although you may not have heard of it, LPL Financial is a big brokerage firm with big problems. LPL is the nation’s fourth largest brokerage, after Wells Fargo, Morgan Stanley and Merrill Lynch.
According to a March 21, 2013 article in the New York Times, LPL is facing a flood of complaints from state regulators and customers over lax compliance and supervision of its 13,300 brokers, many of whom work out of small offices and are responsible for paying their own rent and staff. Although the LPL financial advisors are independent contractors, LPL nonetheless is responsible for making certain that the advisors comply with securities laws and rules and actually understand and properly represent the investments they recommend. According to one securities regulator quoted in the New York Times article, LPL has allowed “egregious problems” to continue, including the sale of complex real estate investment trusts (non-traded REITs) to unsophisticated clients.
LPL has certainly had its share of problems through the years, including failing to detect Ponzi schemes and other blatantly fraudulent conduct by certain of its brokers. The good news is that if firms skimp when it comes to supervising their brokers, they cannot escape being held liable for their wrong-doing. The bad news is that clients who suffer losses generally must take it upon themselves to hire counsel and bring FINRA arbitration claims in order to make firms realize the true cost of being penny wise and pound foolish.