In April 2025, LPL’s clients suffered a trading outage during an active trading session. For hours, customers could not access accounts during steep market drops.
The lack of access on the part of LPL’s representatives and investors is actionable for those who have suffered losses. There are plans that are required for such outages. These outage plans do not appear to have been in place or were not followed during the outage.
LPL is also increasing its use of alt investments. Alternative, or “alt,” investments are high-risk and usually only suitable for investors looking to speculate or who can afford a high risk of loss. In February 2025, LPL launched its Alt Connect Platform. This is not the first time LPL has drifted into the potentially murky ground of alt investments.
In May 2016, LPL broker Brian David Smit of Sioux Falls, South Dakota was barred from the securities industry. This was pursuant to an agreement reached between Smit and FINRA regulators, an agreement referred to as an “AWC.” The allegations concerned the sale of unapproved private securities. His record also reflects that Smit was under investigation for such sale when he left LPL. The sale of unapproved investments is a matter of concern since it is commonly a vehicle for fraud.
On May 6, 2015, the Financial Industry Regulatory Authority Inc. (“FINRA”), ordered LPL Financial to pay substantial in fines and restitution for offenses described by FINRA as “widespread supervisory failures” related to sales of complex, alternative investment products. Such products are suitable for only a limited portion of the investing public and FINRA prohibits the sale of such products to investors to whom such investments would not be suitable.
Suitability rules protect investors from being invested in investments that are not consistent with the objectives or risk tolerances of the investor. Advisor motivations for selling unsuitable investments can vary. The most common reason is that high risk or illiquid investments often pay higher commissions.
FINRA indicated that part of the issue with LPL stemmed from insufficient supervision. From 2007 to as recently as April 2015, FINRA alleges that LPL failed to properly supervise sales of certain complex investments, including certain exchange-traded funds (“ETFs”), variable annuities and nontraded real estate investment trusts (“REITs”), and also failed to properly deliver more than 14 million trade confirmations to customers, according to the regulator.
Trade confirmations are important for a number of reasons. The confirmation not only lists the price paid but also identifies whether the investment was the idea of the advisor or the investor. When an issue arises as to whether an investment was appropriate, the question of whether the investment was the advisor or the investor comes into play.
LPL did not have a system in place to monitor the length of time customers held securities in their accounts or to enforce limits on concentrations of those complex products in customer accounts, FINRA said. Such issues can lead to the sale of unsuitable investments and put such portfolios in a position of greater risk than the investor may have wanted or could afford to take.
The systems that LPL had in place to review trading activity in customer accounts were plagued by “multiple deficiencies,” Finra said. The firm failed to generate proper anti-money laundering alerts, for instance, and did not deliver trade confirmations in 67,000 customer accounts, according to the settlement letter.
The regulator also charged the firm for failing to supervise advertising and other communications, including brokers’ use of consolidated reports.
LPL paid significant penalties. This includes a $10 million fine and restitution of $1.7 million to investors of LPL who were sold certain exchange traded funds (“ETFs”). FINRA, in a statement, said the firm may pay additional compensation to ETF purchasers “pending a review of its ETF systems and procedures.” As such, investors should speak to an attorney to maximize recovery of losses.
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