Allstate Financial Services, LLC, headquartered in Lincoln, Nebraska, has been censured and fined $1,000,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm, inter alia, had mass incomplete or missing accounts records concerning customer suitability. Letter of Acceptance, Waiver and Consent, No. 2015047806501(Dec. 15, 2016).
According to the AWC, between 2001 and 2016, the firm had either misplaced or failed to properly complete records regarding nine thousand and two hundred of the firm’s customer accounts which held variable products as well as mutual funds. Apparently, the customer accounts had not been tied into the firm’s electronic systems designed to provide notices.
The AWC revealed that several errors led to Allstate Financial Services’ mishap. Particularly, certain records concerning the accounts were submitted by the firm’s registered representatives directly to sponsors of investment products, which caused Allstate’s systems to be bypassed. Apparently, the firm did not routinely enforce the policy which was designed to prevent such an outcome. Additionally, the AWC stated that there was inadequate documentation pertaining to accounts which had been transferred from other entities to Allstate Financial Services. Further, the information pertaining to outside accounts had not been correctly entered.
The AWC revealed that the firm’s mishaps caused the firm to be unable to verify ownership of nearly seven thousand of the accounts held with the firm. Further, no information was reportedly obtained by the firm regarding customers’ investment profiles, and the firm failed to confirm that investment recommendations made to such customers were suitable. The firm also reportedly failed to provide customers with accounts records and privacy notices.
FINRA found that the firm’s failure to identify ownership of the seven thousand accounts was conduct violative of FINRA Rules 2010, 3310, and NASD Rules 2110 and 3011. Additionally, FINRA found that the firm’s failure to attain documentation and information concerning investment profiles associated with the ownership of nine thousand and two hundred accounts resulted in the firm’s failure to make legitimate determinations on variable products and mutual funds suitability. As such, FINRA found that the firm violated FINRA Rules 2010, 2111, and NASD Rules 2110 and 2310.
Further, the firm was found by FINRA to have violated FINRA Rules 2010 and 4511, NASD Rules 3110 and 2110, Securities Exchange Act Rule 17a-3, and Regulation S-P in connection with the firm’s failure to provide required account statements and privacy notices.
Allstate Financial Services was also cited by FINRA for failing to supervise the use of consolidated reports. Since 2009, the firm evidently enabled such reports to be customized by its registered representatives, where such reports possibly included customers’ assets held away from the firm. Apparently, an estimated four thousand reports were generated between 2009 and January of 2015 by the firm’s registered representatives.
The AWC indicated that the utilization of consolidated reports by the firm’s registered representatives had not been properly supervised by the firm. Specifically, registered representatives had not been trained by the firm on how to utilize such reports. Additionally, the firm reportedly failed to task supervisory personnel with overseeing the use of such reports, or even ensure that the information contained in such reports was accurate. The AWC also revealed that the firm failed to retain such reports as required.
FINRA found that the firm’s supervisory failures pertaining to consolidated reports was violative of FINRA Rules 2010 and 3110, and NASD Rules 3010 and 2110. Further, FINRA found that the firm’s failure to properly retain the consolidated reports constituted violations of FINRA Rules 4511, 2010, NASD Rules 3110, 3010, 2110, Securities Exchange Act Section 17, as well as SEC Rule 17a-4.
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