February 5, 2021
The Financial Industry Regulatory Authority (FINRA) Department of Enforcement recently approved a Letter of Acceptance, Waiver and Consent (AWC) submitted by three member firms owned by parent company Cetera Financial Group, a non-registered company. These firms, Cetera Advisor Networks, LLC, Cetera Advisors LLC, and Cetera Financial Specialists LLC (collectively referred to as “Cetera Firms”) have been FINRA member firms since the early 1980s.
Cetera Advisor Networks (Networks) is headquartered in El Segundo, California and has over 3,500 registered representatives in 1,633 branch offices. Cetera Advisors LLC (Advisors) is headquartered in Denver, Colorado and has approximately 1,631 registered representatives and 810 branch offices. Cetera Financial Specialists (Specialists) is headquartered in Schaumberg, Illinois and conducts general securities business out of 870 branch offices and employs just under 1,500 registered representatives.
According to the AWC, the Cetera Firms failed to establish, maintain, and enforce a supervisory system and written supervisory procedures reasonably designed to supervise private securities transactions conducted by their dually-registered representatives (DRR) who managed over $80 billion in customer assets in over 47,000 accounts. These DRRs are associated with unaffiliated registered investment advisors.
All three firms were aware of the supervisory deficiencies identified in examinations by the SEC in July 2013, August 2015, and September 2017. Starting in 2014, the firms outlined steps they would take to ensure systems were in place to supervise its outside registered investment advisors (RIAs), but the Cetera Firms did not follow through with improvements to their plans or they implemented procedures that continued to limit their oversight of DRRs’ outside advisory transactions. As a result, the Cetera Firms violated NASD Rule 3040(c) and FINRA Rules 3280(c) and 2010 for failing to supervise the private securities transactions executed by the DRRs and NASD Rules 3010(a) and (b) and FINRA Rules 3110(a) and (b) and 2010 for failing to establish, maintain, and enforce proper supervisory systems. FINRA also asserts in the AWC that the Cetera Firms violated NASD 3110 and FINRA Rules 4511 and 2010 for failing to keep books and records.
By signing the AWC, the Cetera Firms consented to a collective $1 million fine with Networks, Advisors, and Specialists of $750,000, $150,000, and $100,000, respectively. Additionally, all three firms must seek a certification regarding supervision of DRR securities transactions, including a review and revision, as necessary, of their policies, systems, and procedures.