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
Trusted financial professionals may mislead their clients, overconcentrate their accounts in risky assets, or churn their accounts to pocket higher commissions. LPL Financial broker fraud investigations follow up on claims of many types of misconduct.
It’s important for investors to know they have resources available for evaluating their case. Most often, brokerage firms require investors to take any disputes to FINRA arbitration, a system of resolution involving neutral arbitrators. FINRA Dispute Resolution Services facilitates arbitration nationwide.
Securities fraud attorneys can evaluate your account for signs of fraud and help you navigate the arbitration process. Many claims result in LPL Financial settlements, and others may involve intervention by regulators like FINRA and the SEC.
However, previous arbitrations and settlements are not a sign of firm liability. Evaluations of each claim are based on the client’s situation and the evidence provided in each case.
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 can Contact Kurta Law for a broker fraud evaluation.
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 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 settlements are not proof of firm misconduct.
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 investor’s investment 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 unsuitable for the client’s financial goals, it is prohibited by FINRA Rule 2111. We’ll talk more about 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
In addition to these statistics, arbitrators take into account how trading activity aligned with the investor’s 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.
LPL Financial Unauthorized Trading Claims & “LPL Financial Scam” Allegations
You may not realize at first when your broker executes a trade without your permission. Unauthorized trading occurs when brokers exercise their trading discretion beyond what their client has authorized.
Unauthorized trades are:
- Placed by the broker without discussion
- Placed when the investor was unavailable for approval
- Inconsistent with the client’s risk tolerance
- A material alteration in strategy without authorization
FINRA Rule 3260 prohibits unauthorized trading and provides guidelines for the use of discretion. 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.
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 suitability allegations.
Unsuitable investment recommendations are one of the most common allegations levelled 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.
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 a result of a purposeful action on the part of their broker.
Overconcentration is fundamentally unsuitable because it exposes an investor to an inappropriate degree of risk, making it a violation of 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 cases of 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.
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 is established by FINRA Rule 3110, which requires firms to create and enforce systems of supervision to ensure their representatives follow securities regulations. If LPL Financial fails to identify red flags of broker misconduct, like the high cost-to-equity ratio associated with churning, it 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 does not need to prove that the firm intended 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 settlements involving other clients are not evidence of firm liability.
LPL Financial Selling Away Allegations
Brokerage firms restrict their brokers from selling investments not offered by the firm. This is because firms conduct due diligence on the investments they offer in order to avoid being vectors 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 seek approval from their firm 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 other 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. It can also be a part of a broker’s outside business activity (OBA). You can learn more about selling away and OBAs.
LPL Financial Settlement & 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 settlement is offered and accepted, you’ll progress to a hearing, where both sides can present evidence and make use of witness testimony. Afterwards, the arbitrators issue a binding and enforceable award. Hearings typically take place 12-18 months after filing.
LPL Financial settlements may be offered anywhere in this process, even during the hearing. However, an offer of settlement isn’t an admission of liability.
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 of these models, 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.
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 also allows our attorneys to successfully argue client’s cases using 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 will provide 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 against the evidence to determine broker and firm liability.
Evaluating LPL Financial Settlement Offers
A settlement offer may be made during the arbitration process. However, it may not fully address your losses. An experienced investment fraud attorney can evaluate the offer against the financial harm and negotiate a superior settlement.
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.
Frequently Asked Questions About LPL Financial Broker Fraud
Can I sue LPL Financial for broker fraud?
Most brokerage firms require investors to pursue claims through FINRA arbitration. You may have a clause in your account opening documents requiring arbitration. That being said, FINRA arbitration still results in a binding legal agreement.
What is the first step in evaluating a LPL Financial broker fraud claim?
Your first step is seeking out an investment fraud attorney for a structured case evaluation. A stockbroker fraud lawyer can identify patterns of broker misconduct and help make your case in arbitration.
What qualifies as LPL Financial advisor fraud?
LPL Financial advisor fraud can come in many forms, including unauthorized trading, unsuitable investment recommendations, and churning.
What is churning?
Churning is the execution of an unsuitable number of trades. Excessive trading can erase investor’s profits through trading fees and broker commissions.
What is unauthorized trading?
When a broker exercises their trading discretion beyond what their client authorized, they violate FINRA Rule 3260. Unauthorized trading can occur even in discretionary accounts.
What is failure to supervise?
Firms may be held liable for failure to supervise if they violate the requirements of FINRA Rule 3110. Under this rule, brokerage firms must establish and implement supervisory systems to prevent and catch violations of securities regulations.
Does LPL Financial have responsibility if a broker acted alone?
Possibly. If an LPL Financial broker fraud investigation finds that the firm failed to supervise a broker, investors can hold the firm liable for the result of their misconduct.
What if I signed paperwork I didn’t fully understand?
You may still have a case even with signed paperwork. Arbitrators will consider if your broker provided proper disclosure and followed your financial objectives.
Can I bring a claim if my account was discretionary?
Potentially. Trading activity in discretionary accounts must still adhere to suitability as defined in FINRA Rules 2111 and 3260.
What if LPL Financial argues that market volatility caused the losses?
Market volatility is a common defense against claims of misconduct. Arbitrators will consider your losses in the full context of the evidence.
Has LPL Financial settled investor claims?
Yes. Some allegations against LPL Financial have resolved through settlement. The FINRA Award Database shows recent LPL Financial awards.
What is a LPL Financial settlement?
Investors may win an LPL Financial settlement by substantiating their claim. A stockbroker fraud attorney can help negotiate a settlement between you and the firm, but settlements do not indicate firm liability.
How long does FINRA arbitration take?
FINRA arbitration takes about 12-18 months, making it a generally faster path to resolution than civil court. However, the length will depend on the complexity of your case.
How long do I have to file a complaint?
It’s important to get a case evaluation from a stockbroker fraud lawyer as soon as possible. Investors typically have only six years after misconduct to file a claim under FINRA Rule 12206.
What evidence strengthens an investment claim?
Trading records, account statements, and investment disclosures can support your claim.
What damages may be recovered from broker fraud?
Arbitration awards may grant compensatory damages and interest; in some circumstances, you may be awarded additional damages as well.
Does calling something an LPL Financial scam mean fraud occurred?
Many types of misconduct are called an LPL Financial scam, but this is not a formal term. An investment fraud lawyer can evaluate your account for evidence of broker fraud.
Contact Kurta Law
The securities fraud attorneys at Kurta Law have years of experience representing investors in FINRA arbitration. We have a history of achieving recovery for clients 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.