If you are a senior investor of Independent Financial Group (IFG) and invested in or suffering losses in “alternative investments” call for a free and confidential consultation.
Regulators issued an AWC, a regulatory violation settlement, in which IFG was censured, fined $200,000 and required to implement supervisory systems reasonably designed to address all areas of conduct identified in the AWC and achieve compliance with suitability requirements for alternative investments. The alternative investments IFG sold were non-traded REITS, REITS that were not publicly traded, and structured notes.
Brokerages have duties to know their investors and only recommend investments that are “suitable,” investments consistent with the wants and needs of the investor. This would include an investors tolerance for risk and needs for liquidity. Failure of a brokerage to recommend only suitable investments is fraudulent for a number of reasons. The most common is that investments with higher risk and lower liquidity commonly pay a much higher commission than suitable investments.
Without admitting or denying the findings, IFG consented to the sanctions and to the entry of findings that it failed to reasonably supervise its financial advisor’s recommendations of alternative investments to customers, including senior customers, and IFG’s failure to reasonably investigate things that should have put it on notice of the problem.
While the failure to have adequate supervisory systems is an indication that the failures could be systemic, the settlement focused on a single financial advisor. The financial advisor in question recommended that many of the firm’s investors concentrate their retirement assets in non-traded REITs and structured notes. Many of the investors had little or no investment experience.
The IFG supervisors observed and reported certain irregularities and concerns relating to the financial advisor’s recommendations. Despite these and many other issues, heightened supervision plan was never reasonably executed. One of the representative’s supervisors documented issues of the advisor’s misconduct in his notes, which the supervisor shared with others at the firm .
The supervisor’s notes highlighted concerns such as investor signatures that did not match, questionable changes to investor risk tolerances and potentially unsubstantiated increases in investor net worth. Notwithstanding the identification of these issues, the firm permitted the representative to continue to sell non-traded REITs and structured products to his customers.