Triad Advisors LLC a securities broker dealer headquartered in Atlanta Georgia has been censured and fined $150,000.00 by Financial Industry Regulatory Authority (FINRA) based on findings of Triad’s failure to supervise its stockbrokers’ transactions resulting in unsuitable trades being effected in customers’ accounts. Letter of Acceptance Waiver and Consent No. 2017052330501 (Feb. 9, 2021).
According to the AWC, written supervisory procedures that were implemented by Triad had required customers’ mutual fund switch transactions to be reviewed by supervisory personnel and confirmed by customers. Triad’s supervisors were responsible for confirming that they reviewed transactions and examined Triad’s transaction reports.
FINRA indicated that those supervisory procedures were not enforced by the securities broker dealer. As an example, supervisors were able to confirm transactions before receiving switch letters from customers. Some of those switch letters were not received by Triad until long after customers’ switches occurred. Some switches occurred without any switch letter on file.
The AWC also stated the Triad supervisors failed to review transactions before they were executed in customer accounts. As an example, ten customers’ accounts collectively contained 182 trades. No more than 42 trades were placed on the exception reports used by Triad. There was no indication of any supervisory review on those 42 trades.
FINRA also indicated that between June 3, 2015 and July 31, 2017, unsuitable short-term trades had been executed in at least ten customers’ accounts. These transactions involved switching of Class A mutual fund shares. The AWC stated that customers had long-term or mid-term investment horizons when these transactions occurred. Shares were not held in their accounts for any longer than one year.
Short-term transactions were authorized by Triad before it obtained switch letters from its customers. FINRA also indicated that some switch letters raised concerns or were incomplete but this did not result in any follow up by Triad supervisors. FINRA found that the securities broker dealer violated FINRA Rules 2010, 3110 and 2111 in this respect.
FINRA also revealed that Triad failed to supervise variable annuity exchanges. Between June of 2015 and December of 2017, a supervision system and written supervisory procedures had not been put in place by Triad for determining whether stockbrokers’ exchanges of variable annuities were suitable. The AWC stated that there were no procedures used by the securities broker dealer for assessing the rates in which annuities were exchanged.
Triad supervisors were obligated to make determinations about problematic exchanges. But those supervisors were not provided with any tools or exception reports for uncovering red flags.
Between July 1, 2016 and June 30, 2017, the securities broker dealer sold $743,000,000.00 worth of variable annuities. There were 21,927 exchanges throughout this time which equated to $199,400,000.00 worth of the annuity sales.
FINRA indicated that there was no method for supervisors to distinguish annuity replacements from annuity exchanges. This precluded Triad supervisors from knowing whether exchanges were not appropriate. Triad failed to supervise in violation of FINRA Rules 2010, 2330(d) and 3110.
The AWC also confirmed that between June of 2015 and December of 2017, there were 15 customer initiated investment related FINRA securities arbitration claims in which each of them settled for more than $25,000.00 in damages. The securities broker dealer was required to timely report this information but waited about 600 days on average to make disclosures. FINRA also indicated that four customer complaints were not timely reported. Those complaints concerned one of Triad’s stockbrokers having borrowed from customers.
Triad also neglected to timely disclose on stockbrokers’ Forms U4 that they were subject of customer initiated investment related FINRA securities arbitration claims alleging wrongdoing by the stockbrokers. There were also late disclosures by Triad concerning its terminations of stockbrokers who were subject of customer disputes. FINRA found that Triad Advisors violated FINRA Rules 2010, 4530(d) and 4530(a) for this reason.