FINRA Fines Sterne Agee Financial Services for Compliance Issues
According to FINRA, Sterne Agee Financial Services (CRD #18456, Birmingham, Alabama) submitted an AWC in which the firm was censured and fined $122,500. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish, maintain, and enforce a supervisory system and WSPs reasonably designed to ensure that the firm made timely and accurate amendments to registered representatives’ Uniform Applications for Securities Industry Registration or Transfer (Forms U4) to disclose liens, judgments and outside business activities.
The findings stated that the firm failed to effectively monitor or independently verify a registered representative’s liens, judgments and outside business activity disclosures. While the firm ran a credit check and reviewed the registered representative’s Central Registration Depository (CRD) record upon hire, it relied almost entirely on the registered representative being forthcoming.
The firm also did not require registered representatives to submit an attestation concerning liens, judgments or outside business activities at the time of hire. Additionally, the firm did not conduct any ongoing independent due diligence on their registered representatives to ensure the continued accuracy of their Forms U4. Further, when the firm did become aware that some of its registered representatives had undisclosed tax liens and undisclosed outside business activities, the firm failed to timely amend their Forms U4 to make the appropriate disclosures.
The findings also stated that the firm failed to establish and maintain an adequate system and failed to establish, maintain and enforce adequate WSPs reasonably designed to identify possible inappropriate rates of variable annuity (VA) exchanges. While the firm manually reviewed for exchanges as part of its overall suitability review of VAs, the WSPs failed to document this process, which was also not adequate because it did not track any trend analysis that would have identified high rates of exchanges.
Instead, the firm relied on its principals reviewing VA transactions to identify significant trends in terms of annuity exchange transactions, without providing any guidance or tools such as exception reports or trend analysis to assist the reviewers in evaluating whether exchange rates were excessive. As a result, the firm failed to establish and maintain an adequate surveillance system to determine if any of its registered representatives had rates of exchanges that raised for review whether such exchanges were inappropriate.
The findings also included that the firm failed to establish and maintain an adequate supervisory system and establish, maintain and enforce adequate WSPs reasonably designed to ensure suitable concentration levels of customer VA positions. While the firm manually reviewed for concentration as part of its overall suitability review of VAs, the WSPs failed to document this process and the firm failed to adequately evidence such review.
The firm also failed to develop and document specific training policies and programs regarding suitable concentration levels of VA positions in customer accounts. Specifically, the firm failed to provide training to its representatives and principal reviewers concerning suitability or sales practice issues that can arise when a customer is overly concentrated in VAs.
For FINRA’s full findings see FINRA Case #2014039419601.
Sterne Agee Financial Services is a registered investment advisory firm located in Birmingham, AL.
This information which is publicly available on FINRA’s website has been provided by The White Law Group.
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