LPL Financial (“LPL”), virtually unknown ten years ago, currently ranks as the fourth-largest brokerage firm based on the number of business advisors, behind Wells Fargo, Morgan Stanley and Merrill Lynch. It markets itself as a low-cost investment house that allows smaller investors access to the same types of investments as investors with larger portfolios. During these precarious financial times, when other brokerage houses have tightened their belts and suffered losses, since 2005 LPL has exploded in size and now boasts 13,300 brokers in 6,500 offices that service 4.3 million customers. LPL has done so, in part, by touting the fact that it does not sell its own investment vehicles or engage in “proprietary trading” of its own account.
However, numerous accusations of malfeasance have been brought against the firm by state financial regulatory authorities, and individuals who have filed lawsuits against the company for losses they have incurred.
One of the key administrative functions that LPL is supposed to provide is supervision of the brokers’ compliance with financial rules and regulations enacted to protect individual investors from everything from improper investment advice to outright theft. At the same time, one of the accusations against LPL has been lapses in such oversight, from both state regulators and individual investors.
Claims against LPL brokers have included sales of improper investments to “non-qualified” individuals who cannot afford to place money in high risk investments, Ponzi schemes, and the “pushing” of investments which are contrary to the individual’s needs but pay large commissions to the selling broker.
As an example, some LPL brokers have allegedly encouraged smaller investors into junk-rated debt funds known as “non-traded business-development companies.” These funds claim that they offer opportunities to investors who are too small to invest in hedge funds and other private equity funds. While these debt funds offer large potential returns, they are sometimes called “junk” because they stand a significant risk on non-payment. In addition, buyers often pay large upfront fees and high management and performance fees which significantly cut into any financial returns. Finally, because of their high risk and the fact that they are not traded on any markets, investments in these funds are usually difficult to resell; as a result, investors are left holding onto mostly worthless, illiquid funds for which there is no resale market.
Not all LPL brokers have engaged in wrongdoing. However, LPL has numerous reportable events on its FINRA Broker Report. It has been named in regulatory actions concerning possible securities fraud violations, and has been the subject of investigations conducted by FINRA, the State of Missouri, the Kentucky Division of Securities, and the Securities and Exchange Commission. You can read about all such claims by visiting FINRA’s BrokerCheck at http://brokercheck.finra.org
We have written in the past about investments of which most investors should be leery. If you have suffered financial losses with an LPL broker, or any other investment advisor, you may wish to consult with qualified legal counsel who can review your investment history and documentation to determine whether you may be entitled to financial compensation.
