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.