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FINRA fines Berthel Fisher, highlights the importance of compliance

The investment broker provided insufficient training and poor supervisory conditions for brokers over a period of four years

As financial companies know, compliance lawsuits can be expensive, which is why it is vital to have a competent compliance staff. We have witnessed in the U.S. — since the 2008 financial crisis — the growing importance of having a chief compliance officer, particularly with legislation requiring companies of certain sizes and business practices to keep one on staff. In fact, the Securities and Exchange Commission has made a point of cracking down on financial firms’ compliance missteps. Yet, examples persist demonstrating the dangers of having sub-par compliance procedures in place. On February 24, the Financial Industry Regulatory Authority (FINRA) fined financial and investment firm Berthel Fisher $775,000 for compliance failure.

Brad Bennett, FINRA’s executive vice president of enforcement, stated that Berthel Fisher had failed to adequately train and supervise brokers selling investments including non-traded real estate trusts and leveraged and inverse exchange-traded funds.

He said that the investment broker “had inadequate supervisory systems and written procedures for sales” and he further emphasized the importance of having adequate compliance structures in place: 

“A strong culture of compliance is an essential element of the proper marketing of complex products. Berthel's supervision of the sales of nontraded REITs, inverse ETFs and other products fell short of this standard, as it failed to ensure that its registered representatives understood the unique features and risks of these products before presenting them to retail clients.” 

The fine is a result of an examination of Berthel Fisher’s practices from January 2008 through December 2012, but in the same investigation found that the investment broker did not have a reasonable basis for sales of some leveraged and inverse EFTs from April 2009 to April 2012. The failure to comply with supervisory and training standards has left Berthel Fisher three-quarters of $1 million out of pocket, not to mention likely a bit stung from FINRA’s slap on the wrist. Rather than confirming or denying any of the charges, the investment company has simply consented to the regulator’s findings.

Financial firms would do well to take FINRA’s fine against Berthel Fisher to heart as another reminder of the essential requirement of having an adequate compliance policy and staff. InsideCounsel’s Rich Steeves interviewed Todd Cipperman, founding principal of Cipperman Compliance Services to discuss some of the pain points for companies that struggle with maintaining sufficient compliance. While compliance is commonly seen as more of an annoyance than a beneficial operation, Cipperman spotlighted its necessity with a familiar analogy:

“You may not like that it is snowing out. You can yell about it and hope it doesn’t. But all you can really do is wear the right clothing.”

 

Further reading:

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GCs speak out on their 2014 risk and compliance concerns

Risk-based approaches key to compliance programs

SEC to collect illegal proceeds from insider trading

Contributing Author

Juliana Kenny

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