FINRA Sales Practice Violations

Failure to Supervise

The Financial Regulatory Industry Authority (FINRA) requires brokerage firms to supervise all of its employees including money managers, who manage client assets and brokerage firms, who manage financial advisors who make client-specific recommendations. UBS Financial Services of Puerto Rico, Santander Securities, Popular Securities, Oriental Financial and Merrill Lynch must comply with the securities industry standards of care for the handling of customer accounts and is reflected in brokerage firm compliance manuals. Brokerage firms are responsible for the supervision of all the activities of its investment management team and its financial advisors. According to FINRA, the failure of a brokerage firm to meet their supervisory responsibilities may results in a financial fines, penalties and potential compensatory awards to customers in FINRA arbitration hearings.

Brokerage firm supervisory responsibilities include the development of systems designed to supervise specific activities related to the type of business conducted by the brokerage firm and financial advisors at the branch offices located in Puerto Rico. Branch office managers are the first line of defense to protect the investors from violations of FINRA rules and regulations. Brokerage firms and the branch office managers are responsible for the supervision of:

  • Financial advisor hiring and selection;
  • Financial advisor training;
  • Financial advisor communications with customers;
  • Financial advisor presentation materials;
  • Financial advisor client recommendations;
  • Financial advisor client transactions.

Due to the number of financial advisors, an electronic management system is used for the oversight of activity in client accounts. The monitoring and review at the branch office is accomplished through the use of exception reports developed by brokerage firms to flag certain activities in customer accounts. The activities that are monitored include:

  • percentage decline in brokerage account equity;
  • levels of margin and bank loans related to brokerage accounts;
  • excessive trading or “churning”;
  • broker account revenues based on account equity and type of security;
  • concentration in Puerto Rico Municipal Bonds; and
  • concentration in Puerto Rico Bond Funds.

In some instances, branch office managers are required to have direct communications with customers to determine whether customers understand the investment strategy and the risks associated with the strategy employed by their financial advisor. Lack of access to your branch manager could be a red flag for customers. Puerto Rico customers who have questions about their brokerage accounts should not be shunned for their efforts to obtain clarification for questions that are not fully answered. Now it may be time to speak with our legal team to get answers.

Klayman & Toskes, P.A. and the Carlo Law Offices are dedicated to the rights of Puerto Rico investors. Our legal team can help you determine what steps can be taken to protect your investor rights. Puerto Rico investors who suffered losses as a result of a failure to supervise a financial advisor, who recommended investments in non-traded, closed-end Puerto Rico Bond Funds may be able recover their losses in a FINRA arbitration claim.

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Visit our Website for the Recovery of UBS Puerto Rico Bond Fund Losses

For more information on how to start a claim, or to find out if you have a meritorious cause of action, please contact our law firm, toll free, at (787) 268-6444, for a free consultation.

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