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Hornor, Townsend & Kent

Hornor, Townsend & Kent (CR #: 4031) is a financial institution that is registered both as a brokerage firm and an investment advisory firm. That means it both executes securities transactions and advises investors on how best to manage their investment portfolios.

Investors should know that both Hornor, Townsend, and Kent (HTK) and its registered representatives have multiple misconduct allegations on their BrokerCheck record. There are a total of 17 disclosures on its detailed BrokerCheck record, which includes regulatory actions by the Financial Industry Regulatory Authority (FINRA).

Hornor, Townsend & Kent has been registered with FINRA since 1969. Its headquarters are located in Horsham, Pennsylvania. According to FINRA, the firm has approximately 700 registered representatives and 200 registered branch offices.

Regulatory Actions

Investors should review the two most recent regulatory actions on the firm’s record, especially if they purchased variable annuities or shares of Futures Income Payments.

Alleged Ponzi Scheme: Future Income Payments

On March 1, 2023, Hornor, Townsend & Kent entered into an Acceptance, Waiver, and Consent agreement (AWC) with FINRA – an agreement that allows the firm to consent to findings without admitting or denying the allegations – in which it consented to the findings that the firm failed to supervise. According to the AWC, a Hornor, Townsend & Kent broker was able to get away with a Ponzi scheme due to the firm’s lack of supervision.

Firms are required by FINRA Rule 3110 to supervise their registered representatives, including any securities business they perform outside of the firm. FINRA Rule 3110 also states that firms are required to review any red flags of misconduct. The firm’s alleged failure to do so is a type of misconduct known in the industry as “failure to supervise.”

The AWC alleges that a registered representative disclosed that he was selling Future Income Payments to HTK customers. The representative allegedly described these investments as investment-related structured cash settlements.” Hornor, Townsend and Kent supervisors allegedly rejected his outside business request but did not communicate this rejection to the representative.

The AWC alleges that when the representative resigned in 2016, he had sold over $7 million in FIP securities to 16 customers of Hornor, Townsend & Kent.

Future Income Payments is allegedly a Ponzi scheme targeting retirees and military pension holders, and a California judge sentenced the HTK broker to 10 years in prison for his role in the scheme.

The firm consented to a censure and a $180,000 fine.

$275,000 FINRA Fine for Variable Annuity Recommendations

According to an Acceptance, Waiver, and Consent agreement, Hornor, Townsend, and Kent failed to provide sufficient training for selling variable annuities. In certain instances, Hornor, Townsend, and Kent brokers recommended L-share variable annuities in combination with long-term income riders. L-shares are designed for investors who want short-term contracts with the option to surrender after a few years. B-shares are cheaper and more commonly sold than L-shares, and typically come with seven-year surrender periods. Because L-shares are more expensive, brokers should have a reason to believe their customers would benefit from its features.

This AWC alleges that Hornor, Townsend, and Kent failed to adequately supervise the private securities transactions of its representatives, another alleged violation of FINRA Rule 3110.

The firm consented to a censure and a fine of $275,000.

Investment Products at Hornor, Townsend, and Kent

Hornor, Townsend, and Kent offers the following products, some of which may be high risk:

Brokerage Account Fees and Costs

Hornor, Townsend, and Kent offers both brokerage services and investment advisory services. Investment advisory accounts charge a separate fee from brokerage account services, which is typically based on the amount of money in the account.

The following are fees that brokerage account holders might pay:

transaction-based fees, which include separate commissions for ETFs and “mark-ups” for bonds,
mutual funds charge fees called “loads,” which reduce the value of your investments,
commissions: UITs, variable annuities, and closed-end funds come with fees set by the sponsor,
variable insurance products may come with surrender charges,
IRA maintenance fees,
inactivity fees, and
services fees charged by the firm’s custodian.

Conflicts of Interest

Regulation Best Interest requires brokerage firms to disclosure their conflicts of interest in their Customer Relationship Summary form (Form CRS). Hornor, Townsend, and Kent’s Form CRS suggests that investors ask, “Help me understand how fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fee and costs, and how much will be invested by me?”

Hornor, Townsend, and Kent brokers have an incentive to encourage investors to trade more frequently for the sake of commissions and transaction-based fees.
Penn Mutual is Hornor, Townsend, and Kent’s parent company. HTK brokers may receive incentives to recommend these products over those offered by non-affiliated companies.
HTK receives financial and non-financial incentives from product sponsors to encourage the sale of certain securities. Ask your broker if they have any conflicts of interest when recommending an investment product.