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LPL Financial to pay $11.7 million fine over failure to supervise

Boston-based LPL Financial LLC will pay a $10 million fine and $1.7 million in restitution to customers to resolve claims of “broad supervisory failures in a number of key areas,” the Financial Industry Regulatory Authority said Wednesday.

Its complaint related to sales of nontraditional exchange-traded funds, certain variable annuity contracts, and other products, FINRA said in a statement . LPL also failed to monitor and report trades and deliver more than 14 million trade confirmations to customers, the brokerage regulator said.

“LPL’s supervisory breakdowns resulted from a sustained failure to devote sufficient resources to compliance programs integral to numerous aspects of its business,” said Brad Bennett, FINRA’s chief of enforcement.


LPL, a publicly traded company, is one of the largest financial advisory companies in the country. It has about 14,000 brokers, according to its website, and more than 3,300 employees who support them, furnishing them with research, office support, and compliance services.

The company has grown rapidly. Since 2007, it has expanded and acquired several other firms, boosting its total broker count to more than 14,000, the fourth-highest in the country. Annual revenue has nearly doubled since 2007, growing from $2.3 billion to $4.4 billion last year.

But in multiple rulings, FINRA has said LPL has failed to invest enough in its supervisory capacity. Since 2010, FINRA and state authorities have fined the company at least 11 times, according to the Tuesday ruling, including a $9 million fine in 2013 for failing to archive and monitor millions of e-mails sent by its independent brokers.

In 2013, Massachusetts Secretary of State William F. Galvin’s office ordered the company to pay about $2.5 million over allegations it had failed to supervise and train agents. Galvin accused LPL employees of violating state law and a company policy by selling Massachusetts investors risky real estate securities, and said a state investigation revealed the company to be “a boat with many holes.”


Brad Hintz, an adjunct professor of finance at New York University’s Stern School of Business, said LPL has significantly beefed up its compliance efforts in recent years and encouraged its independent brokers to merge their operations to improve oversight. But he said Tuesday’s penalty would add to a list of mea culpas LPL’s management has offered to investors.

“Good intentions by a management team are not considered in regulatory investigations,” Hintz said in an e-mail. “This is certainly an embarrassment for a brokerage firm that prides itself on its technology.”

The company said it had already remedied or was working to remedy several regulatory issues that resulted in FINRA penalties. LPL also said that because it had already budgeted for the fine, it wouldn’t reduce earnings expectations.

“LPL has made a long-term commitment to rebuilding its risk management and compliance infrastructure, and this resolution is a significant step in that process,” the company said. “The substantial and ongoing investments made by LPL in our legal, risk management, compliance, and other control functions reflect that this is a top priority for the company.”

The company’s stock closed at $40.62, down 8 cents, or 0.2 percent.

Jack Newsham can be reached at jack.newsham@globe.com. Follow him on Twitter @TheNewsHam.