Finra Hits D.A. Davidson Over Muni Disclosures, IAA on Product Sales
The Financial Industry Regulatory Authority this week fined and censured D.A. Davidson for inaccurately attesting that it let retail investors buy muni offerings and sanctioned International Asset Advisory for allowing an independent broker to sell unsuitable non-traditional exchanged-traded products.
The inaccuracies occurred in 22 out of a sample of 30 municipal offerings reviewed by Finra, violating Municipal Securities Rulemaking Board rules mandating fair dealing and establishment of reasonable supervisory systems. D.A. Davidson had no written supervisory procedures for reviewing the accuracy of its issue price certificates, the consent letter said.
D.A. Davidson agreed to accept the sanctions, which also include an agreement to notify the muni issuers of the inaccuracies, without admitting or denying the findings. A spokeswoman for the firm, a Finra member since 1952, declined to comment.
Orlando, Florida-based International Asset Advisory, which works with independent retail brokers in about 92 offices, agreed to a $30,000 fine, a censure and restitution of almost $93,000 of losses plus interest to clients who were inappropriately sold “non-traditional exchange-traded products” (NT-ETPs), such as those designed to return a short-term multiple of an underlying index or its inverse.
The restitution involved unsuitable sales by a single unnamed broker who did not understand the “unique features” of the products nor the risks of having customers hold them long term, according to the consent letter signed by IAA and accepted by Finra on Tuesday. The broker solicited 21 positions for five customers, who held them for an average of 327 days in 2014 and 2015, it said.
“Finra has advised broker-dealers that NT-ETPs are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets,” the consent letter said.
IAA, which accepted the sanctions without admitting or denying the findings, violated Finra rules requiring a supervisory system “reasonably tailored to address” that associated persons understand products they are recommending and have written supervisory procedures requiring appropriate suitability reviews.
The consent letter noted that IAA prohibited all solicited sales of non-traditional exchange-traded products in September 2015.
A spokeswoman for IAA, which has been a Finra member since 1982, said the firm is pleased to have resolved the matter.
“We first discovered the trades in question more than four years ago and moved quickly to prohibit all solicited purchases of NT-ETPs. This matter involved just one of our 194 registered reps who made 21 trades for five clients. We are glad to have worked with our regulators to put this matter behind us,” she said.