Finra Fines Kestra Over Recruiting Practice Jeopardizing Customer Privacy
The Financial Industry Regulatory Authority has censured Kestra Financial and fined it $125,000 for helping brokers it was recruiting give personal customer data to an outside firm helping them with their transition.
The sanctions illustrate the slippery slopes firms can encounter in efforts to help brokers transition their practices.
Sixty-eight recruited representatives who affiliated with Kestra between November 2017 and February 2019 disclosed to a Kestra-recommended third-party vendor social security numbers, driver’s license numbers and other personal and financial information—including annual income and net worth—about customers they hoped to move, according to the consent letter.
The unidentified vendor prepared template spreadsheets with personal data fields, and Kestra employees sometimes guided brokers on filling them in when they were still with their former firms, according to the consent letter. Kestra typically reimbursed advisors for fees the vendor charged to help them generate new account documents populated with the spreadsheet data, the letter said.
“Kestra failed to take any steps to inquire whether the recruited representatives or their
broker-dealers at the time had notified customers about the disclosure of their nonpublic
personal information, nor did Kestra take any steps to inquire whether customers had
been given an opportunity to opt-out of having their information disclosed,” the consent letter said. “Kestra also failed to provide any guidance to the recruited representatives concerning the disclosure of customers’ nonpublic personal information to the vendor.”
A spokeswoman for Austin-based Kestra, which was founded in 1997, declined to comment.
Wells Fargo Advisors sued four New Jersey brokers who joined Kestra in 2018 for allegedly taking client information, saying a client had received a package of pre-populated documents that included social security numbers, bank account numbers and account values. A judge turned down its request for an order to restrain the brokers from contacting former clients.
Kestra, which is majority owned by private equity firm Warburg Pincus, accepted the Finra sanctions without admitting or denying findings that its actions violated the self-regulatory group’s Rule 2010. The broad-reaching rule requires member firms and their registered personnel to observe high standards of commercial honor and just and equitable principles of trade.
Kestra has almost 1,850 registered reps in 678 offices, according to the consent letter, which did not specify individual brokers who contracted with the third-party firm.
In recent years, Kestra has stepped up recruiting from employee-model firms. It recruited a $300 million-asset Merrill team in Ohio last summer and a $340 million-asset UBS Wealth Management USA team in Rhode Island two years ago.