The Danger of Networking Arrangements—Mass. State Enforcement Action

May 8, 2017

LPL Financial was recently fined $1 million by the Massachusetts Securities Division in a case involving a networking arrangement with a credit union.  Under the arrangement, LPL had representatives in the offices of DCU Credit Union to provide investment services.  The LPL business operated under a DBA name of the Credit Union, DCU Financial, which the Securities Division asserted could cause confusion as to the true nature of the services and the service provider.  

In addition, the compensation arrangements led to trouble and a fine.  Pursuant to its agreement with LPL, the Credit Union received a payout rate related to annual gross commissions generated by LPL financial advisors at the Credit Union.  In addition, the Credit Union paid bonuses to certain financial advisors participating in sales contests.  These compensation arrangements weren't properly disclosed.

Practical Implication:  Even at the state level, there is increased scrutiny of potential conflicts for brokerage operations and confusion or misleading of the investment public.  Advisers and brokers should be sure to provide appropriate transparency re:  compensation, ownership and the role in which they provide services.

Source:  IN THE MATTER OF:  LPL FINANCIAL LLC, May 4, 2017.