Wells Fargo Advisors, LLC, and Wells Fargo Advisors Financial Network, LLC, both headquartered in Saint Louis, Missouri, have been censured and fined $1,000,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firms failed to supervise consolidated reports that were disseminated to customers concerning outside assets. Letter of Acceptance, Waiver and Consent, No. 2015043740201 (Dec. 5, 2016).
According to the AWC, from June of 2009 to June of 2015, the firms allowed their registered representatives to utilize as many as ten programs in order to craft a consolidated report for customers. The AWC indicated that consolidated reports are typically transmitted from the broker-dealer to the customer, which contain information about all of the financial holdings that the customer has, irrespective of whether the customer’s assets are held within or outside of the firm.
The AWC revealed that the firms were required to provide accurate, clear, and straightforward consolidated reports to customers, and that supervisory protocols and procedures were required to be created and implemented in order to ensure that the reports were accurate. FINRA cited the firms for not taking adequate measures to make sure that the registered representatives accurately stated figures concerning the customers’ outside assets and values.
Particularly, the Application (the most popular application of the ten available to the firms’ registered representatives) was utilized by the firm’s registered representatives in order to create nearly five million Application reports from June of 2009 to June of 2015. Apparently, in the utilization of the Application, manual data regarding customers’ outside assets, accounts, and liabilities were entered by registered representatives and compiled for presentation.
The AWC stated that a mere two percent of the Application Reports had been reviewed by Wells Fargo Advisors and Wells Fargo Advisors Financial Network, LLC for accuracy; however, the firms did not have a supervisory system created for purposes of reviewing whether the contents, including holdings that customers held away from the firm, were accurately stated. The AWC further stated that existing supervision procedures and systems were not adequate because of the inability of the firms to decipher which Application Reports were submitted to customers and which were not.
FINRA ultimately found that the supervisory failures on the part of Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC prevented the firms from complying with securities regulations and laws concerning consolidated reports transmitted to customers. Accordingly, the firms’ conduct was deemed by FINRA to be violative of NASD Rule 3030, and FINRA Rules 2010 and 3110.
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