LPL Reportedly Under Fire From State Regulators

The broker-dealer LPL, Linsco Private Ledger, has been in the news a lot recently – for all the wrong reasons. LPL was even recently featured in The New York Times for its frequent “tangles” with state and federal regulators.

LPL is the nation’s fourth largest brokerage firm, with more than 13,000 brokers who currently service over 4 million customers. LPL attracts brokers from other brokerage firms by reportedly paying a higher percentage of the commissions generated directly to the broker – roughly 80% at LPL versus as low as 15-25% elsewhere. While this model can be very lucrative for well-minded brokers, this model can also attract deceitful brokers who do not have their clients’ best interests in mind and seek to skirt the law.

LPL’s network of brokers is very spread out by brokerage firm standards, with many brokers operating out of an office of only one or two individuals – versus other brokerage firms which may have up to several hundred brokers under one roof.

The law requires that LPL supervise its brokers in remote and small offices as if they were under the main office’s roof. For LPL, this can make supervision over these brokers very challenging, and oftentimes ineffective. In just the past year and a half, LPL was penalized by regulators in five different states for failing to supervise its brokers properly.

Mr. William Galvin, the Massachusetts secretary of the commonwealth, indicated to the New York Times that in a recent investigation, “[w]hat we really saw was a complete lack of supervision.”

Several of these investigations reportedly stem from the sale of Real Estate Investment Trusts (REITs) to unsophisticated investors. Unsophisticated investors may not be aware of the risks inherent to REIT investments such as illiquidity and substantial loss of principle. They may also not be aware that REITs generally pay a high commission to the broker and the brokerage firm who sold it.

Unscrupulous brokers may sell REITs as safe, income producing investments to unsuspecting, unsophisticated investors for whom they are not appropriate, in order to get the higher commission.

The attorneys at Malecki Law engage in securities litigation and arbitration in forums such as FINRA, where they have handled many cases involving firms’ failures to supervise their registered representatives. If you believe you have lost money as a result of questionable conduct by your broker, please contact an attorney at Malecki Law to determine if you may be able to recover some or all of your losses.