LPL Financial Investment Complaints: Common Claims and Recovery Options

Table of Contents

• What Is LPL Financial Broker Fraud?
• Has LPL Financial Been Accused of Broker Fraud?
• LPL Financial Churning Allegations
• LPL Financial Unauthorized Trading Claims & “LPL Financial Scam” Allegations
• Unsuitable Recommendations & LPL Financial Advisor Fraud
• LPL Financial Overconcentration Claims
• Failure to Supervise Under FINRA Rule 3110
• LPL Financial Selling Away Allegations
• LPL Financial Settlement & FINRA Arbitration
• How Damages Are Calculated
• How a Kurta Law Attorney Can Help
• Time Limits Under FINRA Rule 12206
• Frequently Asked Questions
• Contact Kurta Law

Some trusted financial professionals can mislead their clients, overconcentrate their accounts in risky assets, or churn accounts they manage to pocket higher commissions.

Financial broker fraud investigations assess these claims, gather evidence as needed, and work toward financial settlements, following up on claims of various types of misconduct.

It’s important for investors to know they have options for evaluating their case. Most often, brokerage firms require investors to take any disputes to FINRA arbitration, a system of resolution involving neutral arbitrators. Unlike some legal areas, broker fraud attorneys are not limited to specific states.

Kurta Law Firm defends investors by handling securities fraud cases across the US. 

Our securities fraud attorneys evaluate your account for signs of fraud and help you navigate the arbitration process. When we can prove your broker and/or brokerage firm mismanaged your account, you may receive compensation for your losses.

If you have concerns about your broker, reach out today. Kurta Law securities fraud attorneys advocate on behalf of victims of LPL Financial broker misconduct nationwide.

What Is LPL Financial Broker Fraud?

Fraud is a legal term that often refers to a wide range of misconduct. When talking about broker fraud, it generally refers to violations of FINRA Rules and SEC regulations.

Common examples of broker fraud include:

• Unauthorized trading
• Unsuitable investment recommendations
• Misrepresentations or omissions of material fact
• Selling away
• Failure to supervise

LPL Financial broker fraud investigations often begin with allegations of one type of misconduct and later reveal larger patterns of fraudulent activities. This is why it’s vital to seek out a structured review of your account from a stockbroker fraud attorney if you believe you are the victim of broker misconduct.

Investors who believe their losses may be connected to broker fraud should contact Kurta Law for a broker fraud evaluation.

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Has LPL Financial Been Accused of Broker Fraud?

As a large brokerage firm, LPL Financial has been the subject of many allegations of broker fraud. Investors across the country have named LPL Financial in claims of unauthorized trading, unsuitable investment recommendations, churning, and other allegations of serious misconduct.

Do Allegations of Broker Fraud Indicate Firm Liability?

No. Each FINRA arbitration case is evaluated independently based on the evidence provided by the parties involved. While patterns of misconduct involving other LPL Financial clients may be considered within the context of the case, past financial settlements are not proof of firm misconduct.

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LPL Financial Churning Allegations

Claims of LPL Financial churning typically arise when investors take a closer look at their investment performance. Also known as excessive trading, churning involves high-volume trading that racks up trading fees that eat into investors’ profits. In some cases, the trading fees can wipe out your profits completely.

While some brokers may believe in-and-out trading genuinely suits their investors’ goals, the more common reason is that trading generates commissions. Brokers may be tempted to churn an account to increase their own profit in the transactions.

Because churning is typically unsuitable for the client’s financial goals, it is prohibited by FINRA Rule 2111. We’ll discuss this rule and the suitability obligation in more detail below.

FINRA arbitrators use the context surrounding trades to determine if churning occurred. Some of the information they consider includes:

• Cost-to-equity ratio
• Turnover rate
• Commission-to-account-value ratio
• Average holding period
• Alignment with investor goals

For example, a strategy of rapid in-and-out trading benefits the broker more than the client if the investor’s goal is saving for retirement. On the other hand, an experienced investor with a high net worth and risk tolerance may be suited to handle speculative day trading.

Brokerage firms have an obligation to supervise their brokers’ trading activity. A failure to address signs of churning can implicate the firm in your broker’s misconduct. We’ll discuss how failure to supervise relates to claims of fraud in a later section.

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LPL Financial Unauthorized Trading Claims & “LPL Financial Scam” Allegations

When your broker executes a trade without your permission, it may go unnoticed at first. Unethical brokers count on these transactions going unnoticed because, when discovered, they can expose a pattern of unauthorized trading that greatly increases their profit. Unauthorized trading occurs when brokers exercise their trading discretion beyond what their client has authorized.

Unauthorized trades are:

• Placed by the broker without discussing risks with the client
• Placed when the investor was unavailable for approval
• Inconsistent with the client’s risk tolerance
• A material alteration in strategy without client authorization

FINRA Rule 3260 prohibits unauthorized trading and provides guidelines for when broker discretion is appropriate. Churning in discretionary accounts also qualifies as unauthorized trading under FINRA Rule 3260.

Unauthorized trading may be part of a larger LPL Financial scam or other fraudulent scheme. For more information on how these allegations are handled, see our page on LPL Financial unauthorized trading.

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Unsuitable Recommendations & LPL Financial Advisor Fraud

Under FINRA Rule 2111, brokers have an obligation to recommend investments that suit an investor’s profile, which contains important information about their financial situation:

• Age
• Income
• Net worth
• Investment experience
• Risk tolerance
• Time horizon
• Liquidity needs

Brokers must use this information to determine whether an investment aligns with an investor’s financial goals before making a recommendation. This applies to individual investments and investment strategies.

Cases of LPL Financial advisor fraud frequently involve allegations of unsuitability.

Unsuitable investment recommendations are one of the most common allegations leveled against brokers. Here are some of the forms unsuitable investments can take:

• Illiquid exchange-traded funds (ETFs) for an investor with short-term liquidity needs.
• Speculative alternative investments recommended to a conservative investor.
• Overconcentration without fully disclosing risk.
• In-and-out trading that significantly diminishes or cancels out profits.

Suitability may come up in relation to allegations of misrepresentation, selling away, and unauthorized trades. Brokers may hide the unsuitable nature of their recommendation by failing to disclose key information involving risk, fees, and how an investment works.

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LPL Financial Overconcentration Claims

Concentration occurs when a certain asset or sector makes up a significant portion of an investor’s portfolio. Whether concentration is suitable for a client will depend on the investor’s financial situation and on how their account became concentrated.

For example, if an investment is especially successful, it can come to represent a larger portion of the client’s portfolio, resulting in an unintentional concentration. While the degree of concentration may not be appropriate for the investor, it wasn’t the result of a deliberate action by their broker.

Overconcentration is fundamentally unsuitable because it exposes an investor to an excessive degree of risk, thereby violating FINRA Rule 2111. A lack of diversification of assets and industries can have a cascading effect on an investor’s account if the area of their overconcentration experiences a downturn.

In short, overconcentration exposes investors to an inappropriate level of risk.

In claims that allege overconcentration, arbitrators consider the following questions:

• How does the percentage of concentration compare to account size?
• What risk disclosures were provided to the client?
• How sophisticated and experienced was the client?
• Was diversification discussed?
• How did the concentration develop?

Allegations of unsuitable investments and concentration are common in LPL investment fraud claims and require the help of a skilled broker fraud attorney.

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Failure to Supervise Under FINRA Rule 3110

Investigations into LPL Financial broker fraud allegations may begin with signs of broker misconduct and ultimately result in claims of failure to supervise.

Failure to supervise falls under FINRA Rule 3110, which requires firms to create and enforce systems of supervision to ensure that their representatives comply with securities regulations. If LPL Financial fails to identify red flags of broker misconduct, like the high cost-to-equity ratio associated with churning, the brokerage firm can be held accountable for the damage to an investor’s finances.

Here are some common red flags firms typically monitor for:

• Rapid high-volume trading
• High commissions and trading fees compared to account size
• Repeated customer complaints
• Recommendations of similar strategies to multiple customers
• Aggressive margin usage

Crucially, an investor need not prove that the firm intended to cause harm. Rather, investors only need to prove negligence. If a firm is found to have failed to detect and respond to signs of misconduct, it may be held liable.

In cases of failure to supervise, activity in other clients’ accounts may be relevant. However, investors should remember that arbitrations and financial settlements involving other clients are insufficient evidence to establish a firm’s liability in their own case.

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LPL Financial Selling Away Allegations

Brokerage firms should also restrict their brokers from selling investments not offered by the firm. This is because firms conduct due diligence on the investments they offer to avoid becoming conduits for fraud.

When a broker sells investments not offered by their firm, they are engaging in selling away. This violates FINRA Rule 3280, which requires brokers to obtain their firm’s approval before engaging in private securities transactions.

Important questions in cases of selling away include:

• Did the broker seek approval to sell this investment?
• Was the investor informed of the risks involved?
• Did the broker disclose their conflicts of interest in the transaction?

Brokers may engage in selling away to earn high commissions or to avoid scrutiny by their firm. In some LPL Financial scam claims, brokers may sell investments where they have a personal or business relationship with the issuer or another party. These conflicts of interest must be disclosed to the firm and the investor.

Selling away often involves high-risk or private investments that the firm may not approve because they are not in the client’s best interest. It can also be a part of a broker’s outside business activity (OBA).

You can read more about selling away and OBAs or reach out to our broker fraud attorneys and let us answer your questions. 

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LPL Financial Settlements & FINRA Arbitration

Investors seeking to recover from broker fraud should seek out an investment fraud attorney to evaluate their options. The most common path to resolution is FINRA arbitration. Often described as a quicker alternative to civil proceedings, FINRA arbitration cases have several things in common with civil lawsuits:

• Structured presentation of evidence
• Decision made by panel of one or three neutral arbitrators
• Provides legally-binding agreement

Unlike a civil proceeding, arbitration has more limits on the discovery period and your ability to appeal the decision. The FINRA Arbitration Awards Database allows investors to see past public arbitration awards.

How FINRA Arbitration Works

While each case may take different paths, FINRA arbitration follows the same basic process each time:

Filing Your Claim: Your Statement of Claim outlines the alleged misconduct, applicable FINRA Rules, and your requested damages.

Firm Response: LPL Financial and your broker will file an Answer in response to your allegations, marking out their defenses against your claim. You can generally expect an answer in about 45 days after filing your claim.

Arbitrator Selection: Both parties will select one or three arbitrators from a FINRA-provided list. This typically takes 1-2 months.

Document Exchange: The parties will exchange documents, including account records, broker-client communications, and other relevant materials. This can take about 6-9 months.

Hearing and Decision: If no financial settlement is offered and accepted, you’ll progress to a hearing, where both sides can present evidence and make use of witness testimony. Afterward, the arbitrators issue a binding and enforceable award. Hearings typically take place 12-18 months after filing.

Settlements from LPL Financial may be offered at any point in this process, including during the hearing. However, an offer of financial settlement isn’t an admission of liability by the broker or the brokerage.

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How Damages Are Calculated

When it comes to evaluating losses and financial harm, FINRA arbitrators will look at the full context of your case.

Arbitrators may consider several damage models when deciding awards, such as:

• Out-of-pocket losses
• Commission and trading fees
• Market-adjusted calculations
• Benchmark performance
• Margin costs

Your award may be based on a combination, depending on the investments and misconduct involved. For example, excessive trading can lead to a loss in potential profit due to trading fees, but the investors still make some profit on these trades. Market-adjusted damages consider how the client’s portfolio would have performed without this unsuitable strategy.

Allegations involving margin trading also require an examination of margin interest and whether the investor understood the level of risk involved in leveraged positions.

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How a Kurta Law Attorney Can Help

Broker fraud isn’t always easily identified. An experienced investment fraud lawyer can identify signs of excessive trading, unauthorized trading, and unsuitable investment recommendations across a web of documents.

Experience in handling FINRA arbitration cases allows our attorneys to successfully argue client cases using our extensive knowledge of securities regulations.

Structured Review

Achieving recovery begins with a structured review of your account to find patterns of broker fraud. Our attorneys will scrutinize your documentation, including:

• Account opening documents
• Trade confirmations
• Broker communications
• Risk disclosures

This review provides the foundation for your case.

Building a Narrative

Each piece of evidence will be assembled to support your narrative, drawing the connections between broker fraud and your losses. The firm will have access to the same documents and will use them as the basis for their defense, so it’s vital to construct a clear timeline of misconduct based on the documentation.

LPL Financial Defenses

The firm will have its own representation to defend against the allegations. Common defenses in cases of broker fraud include:

• The investor’s portfolio was appropriate.
• The investor chose their investments.
• The investor recognized the risk involved.
• Losses were market-driven.
• The investors approved each transaction.

The arbitration panel will consider these defenses in light of the evidence to determine broker and firm liability.

Evaluating LPL Financial Settlement Offers

A monetary settlement offer from LPL Financial may be made during the arbitration process. However, it may not fully address your losses. An experienced investment fraud attorney can evaluate the financial harm and negotiate a superior settlement.

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Time Limits Under FINRA Rule 12206

FINRA Rule 12206 requires that investors file disputes within six years of misconduct occurring. While there are some exceptions, it remains crucial for investors to seek out an investment fraud lawyer as soon as they suspect broker fraud.

Investors should seek out a securities fraud attorney as soon as they suspect fraud to avoid the time limits of FINRA Rule 12206.

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Frequently Asked Questions About LPL Financial Broker Fraud

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Contact Kurta Law

The securities fraud attorneys at Kurta Law have years of experience representing investors in FINRA arbitration. We have a long history of helping clients recover funds in diverse cases of broker fraud.

If you believe your losses may be the result of misconduct, reach out for a free consultation. Our attorneys will conduct a structured review of your account to uncover patterns of fraud.

Contact Kurta Law today for a confidential case evaluation and discussion of your recovery option.