On July 13, 2021, NEXT Financial entered into a regulatory settlement for excessive trading in which NEXT was censured, fined $750,000 and required to certify that it has implemented supervisory systems and procedures reasonably designed to address the issue.
The trading issues stem from unsuitable short-term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican municipal bonds. Without admitting or denying the findings, the NEXT consented to the sanctions and to the entry of findings that it failed to establish, maintain and enforce a supervisory system, including written supervisory procedures, reasonably designed to detect and prevent unsuitable short-term trading of mutual funds and municipal bonds in customer accounts and over-concentration of customer accounts in Puerto Rican bonds.
Rules concerning suitability and excessive trading are designed to protect investors from excessive risk which an investor is not prepared or willing to take. The motivation for such unsuitable investments is generally a heightened commission to the broker. In the case of turnover of mutual funds, the costs and commissions incurred from sale and repurchase are much higher than the investor can reasonably re-earn if even the account is turned-over only a few times.