Customer Privacy Issues Cost Securities America $125,000
The Financial Industry Regulatory Authority has sent another signal to firms about over-oiling the customer-transition process for advisors they are recruiting.
Securities America agreed to pay a $125,000 fine and accept a censure for causing advisors still working at their former firms to give nonpublic customer information to a vendor that pre-populated new account forms, according to an acceptance, waiver and consent letter the regulator published on Tuesday.
“Between November 2018 and September 2019, Securities America caused 12 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 without the other broker-dealers’ or the customers’ knowledge or consent,” the document said.
Securities America, which is part of Advisor Group’s network of independent broker-dealer firms, accepted the sanctions without admitting or denying the findings. Spokespeople for the Nebraska-based firm did not immediately respond to a request for comment.
The consent letter did not identify the third-party vendor that prepared the new account forms or the advisors in question. The alleged disclosure of customer data violates the Securities and Exchange Commission’s Regulation S-P concerning privacy, which in turn triggers a violation of Finra’s catchall Rule 2010 requiring firms and associated persons to “observe high standards of commercial honor and just and equitable principles of trade.”
A firm that causes another broker-dealer to violate Reg S-P also violates the Finra rule, according to the consent letter. The letter did not say whether the SEC has brought charges against Securities America or the advisors.
The independent broker-dealer delegated employees to participate in conference calls between the vendor and the recruited representatives, and guided the advisors on how to send customer data—which can include account numbers, net worth, social security numbers, phone numbers and addresses—to the vendor, the letter said.
Finra last April fined Kestra Investment Services $125,000 for similar customer privacy violations involving 68 advisors it helped move from other firms.
Securities America, which works with about 4,170 independent brokers in 2,440 branch offices, according to Finra, was formerly part of Ladenburg Thalmann Financial Services Inc. Advisor Group bought Ladenburg’s five retail broker-dealers last year and folded three of them with about 1,000 advisors into Securities America.
The SEC in November imposed a $600,000 civil penalty against Securities America over unsuitable sales of volatility-linked exchange-traded products (ETP) to retail investors. Former Ladenburg firms Summit Financial Group and Royal Alliance Associates also agreed to pay $600,000 and $500,000, respectively, to settle ETP sales-practice charges.
Securities America Chief Executive and President Jim Nagengast, who signed the privacy violation consent order, is a member of Finra’s board of governors.