Cetera Advisor Networks LLC, Cetera Advisors LLC and Cetera Financial Specialists LLC have been censured and collectively fined $1,000,000.00 by Financial Industry Regulatory Authority (FINRA) founded on findings of the securities firms’ failure to supervise their stockbrokers’ private securities transactions and failure to preserve records relating to those outside transactions. Letter of Acceptance Waiver and Consent No. 2015046716901 (Dec. 15, 2020).
According to the AWC, the Cetera firms were required to supervise private securities transactions of those stockbrokers who were also registered with investment advisories as investment adviser representatives when those dually registered stockbrokers’ transactions involved advisory customers’ purchases of securities outside of the Cetera firms’ auspices.
Between July of 2013 and September of 2017, the Cetera firms were made aware from Securities and Exchange Commission (SEC) that they did not supervise their dually registered stockbrokers’ selling away activities. The Cetera firms acknowledged this but did not resolve the problem.
Cetera Advisors maintained supervisory procedures concerning outside registered investment advisory transactions but failed to set forth the specifics on how those transactions would be reviewed. The securities broker dealer did not procure information relating to those transactions until June of 2018 despite telling SEC in July of 2013 about having the necessary information to supervise transactions by 2014. The AWC stated that by June of 2018, 41 Cetera Advisors stockbrokers collectively associated with 17 different registered investment advisories which held at least $1,200,000,000.00 in assets.
Cetera Advisor Networks told SEC that in September of 2015, it would begin to properly supervise outside registered investment advisory transactions. By January of 2016, the securities broker dealer took some steps to obtain information about customers’ suitability information so that it could ensure that transactions were appropriate. But the firm was not provided with this suitability information from third parties who in some cases cut off Cetera Advisor Networks’ access to that information. It was not until June of 2018 that Cetera Advisor Networks obtained data from these third parties. This still did not suffice because it excluded customers’ suitability information. FINRA indicated that the securities broker dealer could not sufficiently carry out supervisory functions for this reason.
The AWC stated that in January of 2018, 487 Cetera Advisor Networks stockbrokers collectively did busines through 12 outside registered investment advisories. Those advisories held $77,800,000,000.00 in assets under management.
FINRA also noted that Cetera Financial Specialists engaged in suitability reviews that were inadequate because of its procedures not allowing for the reviews to be completed until months after transactions were executed. The AWC indicated that some information was manually reviewed by supervisory personnel but those reviews did not uncover all necessary information for suitability including customers’ incomes and assets. By March of 2017, Cetera Financial Specialists had seven stockbrokers who collectively associated with three outside investment advisories which held $382,000,000.00 in assets under management.
The Cetera firms violated FINRA Rules 2010, 3110(a), 3110(b), 3280(c)(2) and National Association of Securities Dealers (NASD) Rules 3010(a), 3010(b) and 3040(c)(2).
