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FINRA Suspends Broker for Generating $450k in Commissions for Unsuitable Trades

Simms Law, P.C. June 14, 2022

The Financial Industry Regulatory Authority (FINRA) recently fined and suspended a broker for allegedly generating $450,000 in commissions from unsuitable mutual fund switches. The broker agreed to a nine-month suspension and a $10,000 fine to resolve the allegations. This type of activity, which happens frequently, is a common cause of costly investor losses. 

What Is An Unsuitable Investment? 

An unsuitable investment is an investment that fails to meet the objectives and means of an investor. An individual investment or an investment strategy may be unsuitable. Examples of unsuitable investments include

  • a portfolio that is the wrong mix of assets for an investor,

  • an investment that is too aggressive for an investor, and

  • an investment that is too low-risk for an investor.

Financial professionals are required to take steps to ensure that an investment suits a client’s needs. In the United States, rules regarding investment suitability are enforced by FINRA.

Facts Surrounding The Broker’s Suspension

In FINRA’s case against the broker, FINRA alleged that the broker recommended and effected the unsuitable switching of certain types of mutual fund shares, including short-term liquidations.

According to FINRA, the broker did not have a reasonable basis to believe that these actions were suitable for her clients. 

In some cases, the broker recommended that clients sell Class A shares, which carried a sales charge of around six percent and are designed to be long-term investments, within a year. Customers paid approximately $450,000 in sales charges due to the broker’s recommendations.

In addition, the broker made costly back-to-back switches in client accounts. In one case, for example, the broker recommended that an investor sell Class A shares that were held for only ten months and use the proceeds to buy new Class A shares—this generated approximately $3,000 in commissions for the broker. In addition, eight months later, the broker recommended that the same investor sell those shares and buy new Class A shares—this resulted in another $2,600 in sales charges.

The broker’s firm terminated the financial professional due to company policy violations related to her failure to obtain authorization from investors prior to placing trades. FINRA began investigating the broker in early 2019 based on a report submitted by the broker’s firm. 

Fort Lauderdale Investor Representation Attorney 

At Simms Law, P.A., we believe that financial advisors and brokers should always do what’s best for their clients. In fact, financial professionals are legally obligated to act in the best interests of their clients. Therefore, when financial professionals fail to keep their clients’ best interests in mind, we believe they should face consequences for their actions—including compensating their clients for any unnecessary and costly investment losses. So, if you have lost money due to the actions of your broker or financial advisor, please contact us today for a consultation.