LPL Puts Teeth Into Penalties for Sales Practice Violations
LPL Financial has updated its standard employment agreement with its more than 14,200 registered representatives to ensure it can claw back commissions from them if they commit sales practice violations, according to updated contracts the brokers received this week.
At the end of a standard paragraph on the first page of the 13-page agreement that requires brokers to refund commissions to customers if they are found to have violated applicable laws or policies, the new contract strengthens the firm’s own right to collect from straying brokers.
“LPL further reserves the right to withhold, capture or offset all or a portion of any Commission payments if a transaction is in violation of applicable law or LPL policy,” the amended language reviewed by AdvisorHub says.
A spokesman for the firm did not return a request for comment on the reasons for the change at this time.
Brokerage industry employment lawyers say that while customer reimbursement policies are not unusual, retroactive “reimbursement” to the firm appear to be new for independent broker-dealers..
“Clauses permitting the firm to recoup from advisors fees and commissions they’ve earned from product sales in other situations—such as when the sale in question is later determined to be unsuitable—are much less common,” said Scott Matasar, a securities employment lawyer in Cleveland. “It provides the firm a way to offset part of its costs if a client wins a suitability case against it in arbitration.”
LPL absorbed more than $75 million in fines and restitution over sales practice violations by its independent contracts from 2014 to 2016. In May, New Hampshire ordered the firm to reimburse customers up to $8 million for non-traded REIT violations for which LPL was previously fined $750,000, while Massachusetts imposed a $1 million fine for supervisory failures.
“LPL has had a raft of compliance issues in the last few years,” said Kevin Hoffman, a securities lawyer in Greenwich, Conn. “They may feel some pressure to placate the regulators by saying if we see something, we’re going to be self-enforcers.”
Publicly-traded LPL’s attempt to insulate itself financially from errant brokers follows Ameriprise Financial’s arbitration victory two months ago requiring a former broker to cover its $675,000 tab for a settlement that the firm made with one of her former clients.
LPL’s revised employment contract also has evoked some grumblings over a new clause that puts a two-month time limit on their ability to challenge their commissions. It requires brokers to notify the firm within 60 days of a transaction if they believe payouts were incorrectly calculated. The firm had not included such a time limitation in existing contracts, several LPL brokers said on internal message boards.