FINRA Hits New York Life Securities for Failing to Supervise Broker Who Switched Mutual Fund Shares for Clients

Chicago-based Stoltmann Law Offices is investigating financial advisors who switch clients into more expensive investments that trigger unnecessary fees. Financial advisors and brokers who work on commission often make “exchanges” that switch clients from one investment into a very similar different investment. They often use the rationale that “you’ll make more money” in these new investments, but the truth is that they’ll make more in commissions and fees.

NY Life Securities has agreed to “pay a total of $263,347 to settle allegations that, as a result of supervisory failures, it failed to prevent several of its clients from being charged excessive, unnecessary fees after one of its brokers engaged in unsuitable mutual fund and cross-product switches,” according to FINRA, the federal securities regulator, as reported by ThinkAdvisor.com.

“On hundreds of occasions” between January 2015 and March 2019, a broker at the firm, identified only as “Broker A,” recommended that 10 clients buy and sell Class A mutual funds after holding the shares for short periods of time, according to FINRA

“As a result of these short-term trades,” the clients paid about $175,000 in unnecessary front-end sales charges for Class A mutual fund shares, with Broker A earning about $116,000 in commissions, FINRA alleged.

NY life responded: “The firm has always acted in good faith and remain fully committed to providing the right tools and guidance to meet financial needs,” a spokesperson for parent company New York Life, told ThinkAdvisor. “We were able to work with FINRA to find a resolution that best serves our clients’ interests,” he added. Without admitting or denying the industry self-regulator’s findings, NYLife Securities signed a Finra letter of acceptance, waiver and consent on Sept. 30, 2021 in which it agreed to be censured and pay a $200,000 fine and restitution of $63,347.

Broker-advisors don’t always tell clients that seemingly innocent trades will generate a windfall in commissions and fees for themselves and their firms. Often it’s a simple matter of moving client funds from one mutual fund share class to another.

Who’s accountable if a broker-advisor gouges you on onerous and unnecessary fees, which erode your total returns? Under FINRA rules, brokerage firms are responsible for supervising the conduct of their brokers, which can be the grounds for an arbitration claim. Such transactions can also be seen as “unsuitable” for a client, especially if they are unaware how much it is costing them in terms of reduced retirement savings.

Have you invested with brokers who have sold you money-losing or overpriced investments or traded without your permission? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk or vet shady companies offering investments, you may have a case in arbitration.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!