Cetera to Pay $125K for Customer Privacy Issues Tied to Recruiting
The Financial Industry Regulatory Authority sent another warning to broker-dealers about over-greasing the wheels when it comes to transitioning their recruits’ clients.
“Between October 2019 and July 2020, Cetera caused 26 registered representatives, whom the firm was recruiting, to take nonpublic personal customer information from the firms where the representatives were then registered and to disclose it to a third-party vendor without the other broker-dealers’ or the customers’ knowledge or consent,” the letter said.
Cetera Advisor Networks, one of five independent broker-dealers under the umbrella of El Segundo, California-based Cetera Financial Group, accepted the sanctions without admitting or denying the findings. A spokesperson for the firm, which works with about 3,500 registered representatives across 1,600 branch offices, according to Finra, did not immediately respond to a request for comment.
Finra did not identify the third-party vendor that prepared the new account forms or the advisors in question in the consent letter.
The alleged disclosure of customer data violates the Securities and Exchange Commission’s Regulation S-P concerning privacy, Finra said. Cetera caused the other firms to violate Reg S-P, which triggered a violation of Finra’s catchall Rule 2010 requiring member firms to “observe high standards of commercial honor and just and equitable principles of trade,” the letter said
While recruiting representatives to join Cetera, the firm delegated employees to participate in conference calls between the vendor and the recruited representatives, and guided the advisors on how to send customer data to the vendor, according to the letter.
This information included phone numbers and addresses as well as nonpublic personal information such as account numbers, net worth, social security numbers and driver’s license numbers, Finra said.
“Cetera failed to take any steps to verify whether the recruited representatives or their broker-dealers at the time had notified customers about the disclosure of their nonpublic personal information,” the letter said. “Nor did Cetera take any steps to verify whether customers had been given an opportunity to opt-out of having their information disclosed.”
Finra enforcers in February levied the same fine and censure against Advisor Group’s retail broker-dealer Securities America over similar customer privacy issues involving 12 recruits. It previously imposed identical sanctions against broker-dealer Kestra Investment Services over similar issues involving 68 advisors it helped move from other firms.