According to a letter of acceptance, waiver and consent issued by FINRA, from June 3, 2015 to July 31, 2017, Triad Advisors failed to establish and maintain a reasonable supervisory system to achieve compliance with suitability requirements related to switching and short-term trading of Class A share mutual funds and failed to supervise this type of trading.
Class A mutual fund shares typically include substantial upfront sales charges, known as “front-end loads.” They generally are suitable only as long-term investments and not short-term trading because an investor usually must hold the A share for a long period of time to account for the front-end load. Mutual fund “switching” occurs when a customer sells mutual fund shares and reinvests the proceeds in another mutual fund, often incurring additional charges and commissions. Frequent short-term purchases and sales of A shares and switching in a customer’s account may be unsuitable because of the frequency of the transactions, the transaction costs incurred, or the customer’s financial situation, investment objectives and needs.
From June 3, 2015, through July 31, 2017, a registered representative associated with Triad Advisors engaged in short-term, unsuitable purchases and sales and switching of A share mutual funds in 10 customer accounts, resulting in customer losses in nine of the accounts of $43,998.48. The customers’ accounts all indicated an investment objective of capital appreciation, preservation of capital, and/or income. The customers all had an intermediate or long-term time horizon. Nonetheless, all the accounts held A share mutual fund positions for 12 months or less. The firm approved many of the switch transactions prior to receiving a switch letter from the customer.
Triad Advisors Failed to Timely Disclose Customer-Related Arbitrations
Between June 2015 and December 2017, Triad failed to timely file disclosures in connection with 15 customer-related arbitrations that resulted in settlements greater than $25,000, as required by FINRA Rules. Triad’s disclosures were, on average, over 600 days late and filed only after FINRA began its 2017 examination of the firm. Triad also failed to timely report four written customer complaints pursuant to FINRA Rule 4530(d).
These complaints all related to one representative and revealed a pattern of misconduct by borrowing from customers away from the firm. Triad’s disclosures were an average of 232 days late. The firm settled all four complaints.
In addition, Triad failed to timely update its registered representatives’ Uniform Application for Securities Industry Registration or Transfer Forms (Form U4) to disclose reportable events in six instances. These six instances related to arbitration filings and settlements involving firm registered representatives. On average, Triad reported these six instances 248 days late. Finally, Triad failed to timely update former registered representatives’ Uniform Termination Notice for Securities Industry Registration Forms (Form U5) to disclose reportable events in ten instances. In four of the ten instances, Triad failed to timely update two former representatives’ Forms U5 to disclose that they were subjects of arbitration claims. Triad’s disclosures were an average of 238.5 days late. In the remaining six instances, Triad failed to timely update the applicable Forms U5 where former registered representatives were the subject of arbitration settlements of more than $15,000.
Contact The Frankowski Firm
If you or someone you know has lost money as a result of unsuitable investment recommendations or frequent account transactions, please call the Frankowski Firm at 888.741.7503 or fill out this contact form.