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Cetera Advisor Networks: Rule Violations and Conflicts of Interest

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

Investors who have lost money after working with Cetera Advisor Networks should consult with a securities lawyer. Cetera Advisor Networks (CRD #: 13572) is part of Cetera Financial Group and has headquarters in El Segundo, California. This firm is registered as both a brokerage firm and an investment adviser firm. Brokerage accounts allow investors to buy and sell securities, whereas investment advisory accounts come with more active management from investment advisers.

If you want to know more about their alleged rule violations and possible conflicts of interest when recommending securities products, keep reading.

Can I Sue Cetera Advisor Networks?

Yes, you can recover your money if you suffered losses as a result of misconduct on the part of brokers with Cetera Advisor Networks. However, you might have to go through FINRA arbitration rather than civil court.

Most investment contracts include pre-dispute arbitration clauses requiring that investors use FINRA arbitration instead of suing in civil court. Arbitration cases are decided by a panel of FINRA arbitrators rather than a judge and jury. FINRA arbitration rulings are final and binding, and securities lawyers can help improve your chances for a fair settlement.

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.

Cetera Advisor Networks: Regulatory Actions

Investors should be aware that Cetera Advisor Networks has agreed to pay fines following allegations that they failed to follow regulatory rules, as set forth by the SEC and FINRA. There are a total of 34 disclosures on their BrokerCheck record, including 17 regulatory events, two civil events, and 15 arbitration awards.

Investors should keep reading to learn more about the most recent allegations.

Alleged Security Breach and $300,000 Fine

On August 30, 2021, the SEC filed a cease-and-desist order against Cetera Advisor Networks as well as the rest of Cetera Financial Group. According to the SEC, 60 Cetera personnel had their emails taken over by unauthorized third parties, resulting in the exposure of over 4,000 of Cetera customers’ personally identifiable information. None of the accounts had multi-factor authentication turned on, as required by Cetera policies.

Regulation S-P requires advisory firms to adopt policies that protect the security and confidentiality of their customer records.

When Cetera notified clients of the security breach, the notification allegedly contained misleading information. It allegedly made it seem as though the breech notifications had been sent earlier than they actually had been. Section 206(4) requires firms like Cetera to review their communications to ensure they do not contain misleading information.   

Cetera consented to a civil money penalty of $300,000 and a Censure.

Non-Public Customer Information and $125,000 Fine

There is another alleged violation of Regulation S-P on the firm’s record.

On June 25, 2021, FINRA alleged that Cetera Advisors Networks caused registered representatives with other firms to take nonpublic customer information from the firms where the firms were then registered and disclose the information to a third-party vendor. This information allegedly included social security numbers, driver’s license numbers, and birth dates, as well as information on their annual incomes and net worth.

The firm consented to a fine of $125,000.

You can read a copy of the Acceptance, Waiver, and Consent agreement here.

Alleged Failure to Supervise Brokers

On December 15, 2020, FINRA alleged that Cetera Advisor Networks failed to supervise certain private securities transactions of dually registered representatives who were associated with outside registered investments, as required by FINRA rules and regulations. (Many brokers are also registered as investment advisers. Read more about the difference here.)

The SEC ordered Cetera Advisor Networks to implement a supervisory system that met regulatory requirements in 2015, but Cetera used a third-party system that allegedly did not satisfy their obligations. As a result, Cetera was censured and fined $750,000 by the SEC.

You can read a copy of the AWC here.

Mutual Fund Switching and Alleged $700,000 in Customer Losses

On December 19, 2018, Cetera Advisors entered into an AWC  consenting to the findings that the firm failed to respond to red flags of unsuitable mutual fund switching. FINRA alleges that between 2009 and 2015, Cetera Advisors failed to supervise a certain broker, resulting in hundreds of unsuitable mutual fund switches that allegedly resulted in $700,000 in customer losses. These losses occurred in the accounts of 14 customers, including seniors. The firm allegedly failed to take disciplinary action.

The AWC points out that the sales manager’s compensation was based in part on the profitability of the branch, which the representative’s commissions contributed to–therefore, the sales manager allegedly had a financial incentive not to restrict the broker’s mutual fund switching.

What is a Mutual Fund Switch?

Investors may choose to switch their investment from one mutual fund to another, although that switch typically incurs costs. Brokers should warn their investors if a switch they recommend comes with unnecessary costs.  

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What Types of Investments Does Cetera Advisor Networks Offer?

Cetera Advisors Networks offers brokerage services for the following products:

Cetera Advisor Networks Broker Fees

Cetera offers both investment advisory services and brokerage services. The following section focuses on brokerage firm fees. You can see their advisory account fees in their Customer Relationship Summary.

  • Each time you buy or sell an investment, that transaction comes with a commission for the broker. Therefore, brokers have and incentive to encourage you to trade more often.
  • Bonds charge “mark ups” or “mark downs,” which are included in the price of the bond.
  • Mutual funds have sales charges–also known as “loads”– that are a percentage of your investmen.
  • Investments like mutual funds and annuities come with their own internal operating fees.
  • Variable annuities and variable insurance products feature sales charges, as well as surrender fees or contingent deferred sales charges.

Cetera Conflicts of Interest

Cetera has an incentive to recommend certain products over others. The Supplemental Disclosure offers an example: If you invest $10,000 in a mutual fund, Cetera Advisor Networks could be paid up to $50 from a Strategic Partner that it would not receive from a non-strategic partner.

Strategic Partners

Sponsors, a.k.a. “strategic partners,” may also provide other payments or benefits, including reimbursement for marketing expenses as well as “certain types of gifts and entertainment.”

You can see the most up-to-date list of sponsors here.

Broker-Dealer Pershing

Cetera clears its transactions through broker-dealer Pershing LLC. The firm receives a portion of these transaction fees. According to firm disclosures, these executions may not always achieve the best possible price for the customer.

Cetera Advisor Networks Brokers

If you have lost money after working with any of the following Cetera Advisor Networks brokers, contact one of our securities attorneys. These brokers all either work with Cetera Advisor Networks or have represented the firm at some point in the past 15 years.