Finra Accuses Ohio Broker of Doubling Elderly Client’s Commissions
The Financial Industry Regulatory Authority has accused an independent broker in Ohio of unsuitably trading in and out of 20 mutual fund families on behalf of an elderly client, at times investing at levels just below volume discounts she could have received in order to generate higher commissions for himself.
Brian L. Stephan recommended and executed unsuitable investments in 95 trades from May 2012 through May 2014 for a customer who opened her account at age 88 with $780,000. He also falsely described the trades of the A-class fund shares as unsolicited, incorrectly indicated that the customer requested the switches because she was dissatisfied with the investments and changed her investment goals without her knowledge to “Growth and Income” from “Income with Capital Preservation,” according to the complaint that the regulator’s enforcement department filed on August 17.
Many of the funds Stephan bought for the client had the same or similar investment styles and goals, leading Stephan to deprive the customer of volume discounts by failing to concentrate the purchases within a single fund family, the complaint said. It also said he recommended investment amounts “slightly less than the level required for a discount on sales charges.”
His initial round of investments for the customer were in five funds with loads ranging from 3.98% for a BlackRock Large-Cap Value Fund to 5.71% on an Optimum Large-Cap Value Fund. He invested $75,000 in all but the Optimum Fund—the only one that had a breakpoint effective at $75,000 and in which he invested $70,000, according to the complaint.
His breakpoint evasion over the two years directly cost the customer “approximately $30,000 in unnecessary sales charges” and helped Stephan to accumulate $60,000 in commissions, the complaint said.
Stephan, who worked at LPL as a rep and securities principal from November 2003 through August 27, 2014, and is now affiliated with broker-dealer American Wealth Management Inc. in Xenia, Ohio, did not return a request for comment.
The website of of Stephan and Associates Wealth Management lists him as “managing principle” (sic), and says he is a former board member of the Greene County Council on Aging, past president of the Xenia Area Chamber of Commerce and of the Xenia Rotary Club.
Stephan, who first registered in the securities industry in August 2000 when he associated with Edward Jones, affiliated for three years after leaving LPL with Commonwealth Financial Network before joining American Wealth Management, according to his BrokerCheck history.
The database includes a single customer complaint from 2014 that questioned the suitability of a fund account. LPL denied the complaint.
Finra’s enforcement division, which opened its investigation into suitability and standards of conduct in August 2014, asked internal hearing officers to seek disgorgement of Stephan’s “ill-gotten gains and/or make full and complete restitution, together with interest” for violating suitability rules and putting LPL at risk of violating books-and-records rules.