FINRA has ordered SagePoint Financial to pay over one million in restitution to its customers in connection with early rollovers of unit investment trusts. Sagepoint Financial is one of several large broker-dealer firms within the Advisor Group network (along with FSC Securities, Royal Alliance Associates, and Woodbury Financial Services). All together Advisor Group’s network of broker-dealers includes some 7,000 investment professionals nationwide.
Advisor Group also recently completed a merger with Ladenburg Thalmann Financial Services, Inc. which includes approximately 4,500 additional financial professionals nationwide registered with Securities America, Triad Advisors, Securities Service Network, Investacorp, and KMS Financial Services.
Who is SagePoint Financial?
– Sagepoint Financial, Inc. according to FINRA Brokercheck has 25 separate disclosures (14 of them regulatory disclosures as of June 2020).
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– Sagepoint Financial has over 800 branch offices and 1,800 investment professionals nationwide.
What Are Unit Investment Trust (UIT)?
A UIT is sold to investors as a unit or fixed or closed portfolio of securities that is designed to terminate on a specific date of maturity (typically between one to two years later).
The next series of UIT investments are typically offered and coincide with the maturity date of the previous series, and generally have a similar investment objective or investment strategy.
When an investor sells a UIT there is typically several layers of commissions and fees that incentivize the transaction: an initial sales charge (typically up to 1%), a deferred sales charge (typically up to 2.5%), and a creation and development or similar fee (typically up to 0.5%). If the financial advisor recommends that an investor sell their UIT before the prescribed maturity date and then rolls over the funds into a new UIT, it results in increased sales charges for the investor and raises suitability issues.
In an Acceptance, Waiver and Consent (AWC) where Sagepoint Financial did not admit or deny the allegations by the Financial Regulatory Authority (FINRA), Sagepoint Financial agreed to pay $1.3 million in restitution (plus interest) to investors who were recommended to transact early rollovers of UIT investments, and FINRA further imposed a fine of $300,000 on Sagepoint Financial related to supervisory deficiencies that were alleged. FINRA alleged Sagepoint Financial failed to establish and maintain an adequate and proper supervisory system and written supervisory procedures relating to supervision over the suitability of recommendations to investors for early rollovers of unit investment trust investments.
Dangers of Non-Traded REIT For Investors
Sagepoint Financial earlier in 2020 amidst the Covid-19 crisis and related impact on the financial markets temporarily halted sales of non-traded real estate investment trust (REIT) securities.
Some broker-dealer firms look back at the 2008-2009 financial crisis time frame and perceive the business decision to allow ongoing sales of those products amidst those market conditions to have been a mistake. However, the decision to temporarily halt these sales can be criticized as merely superficial, as it does not address the more substantive sales practice, suitability and supervision issues related to these investment products regardless of the market conditions. Some of the explanations included references that the Covid-19 issues were causing difficulties in real estate valuations. However, the lack of transparency and lack of liquidity associated with these investments has not stopped financial advisors from selling billions of dollars of these investments. These types of investment products are rarely suitable for middle-class type investors.
In some instances, the transactions being recommended are unsuitable, the investment products are misrepresented, and investors find themselves with illiquid, risky investments they do not even understand.
Many investors are down forty percent or more in these investments, and others find the attractive distribution income streams are reduced or stopped altogether causing investors additional damages and financial issues. In some cases (often due to high commissions and fees offered for selling these investments) they are oversold to investors who find themselves burdened by large concentrated illiquid positions in investment products no longer paying distributions that are illiquid and decreasing in value.
Non-traded Real Estate Investment Trusts (REIT) are generally considered “high-risk” investments and recommendations of these investments to retirees and seniors can be problematic for financial advisors.
Potential FINRA Customer Disputes
FINRA disputes involving early rollovers of UITs or sales of non-traded REIT investments are not uncommon.
These disputes often include allegations related to several regulatory rule violations as well as negligence, negligent supervision, unsuitability, and misrepresentation.
As to non-traded REIT investments, the disputes also may include additional alleged violations of FINRA Rules 2111 and FINRA Rule 2010.
FINRA Rule 2111 requires the firm or associated person have a reasonable basis to believe a recommended transaction or investment strategy is suitable for the customer based on the information obtained via reasonable diligence on the part of the firm or associated person to ascertain the customer’s investment profile.
Issues raised by securities regulators relating to non-traded REIT investments can be seen in some regulator enforcement actions involving senior investors according to the North American Securities Administrators Association (NASAA, an organization that includes the individual state securities regulators)
At the outset, it appears the deck is often stacked against the investor purchasing these investment products. There are often conflicts of interest, high commissions, high distribution rates, and in order to overcome those hurdles, it may require a 10-15-20% return just for the investor to get back to even. All the while, the pricing is coming not from an active marketplace for the shares, but rather from the sponsor itself, as there are no national exchanges providing pricing transparency, never mind consistent liquidity for investors.
How to Seek Compensation for Your SagePoint Investment Losses
If you are a Sagepoint Financial investor who had premature UIT rollovers in your accounts or if you are a Sagepoint Financial investor who purchased non-traded REITs or non-traded business development company shares (BDCs) and you have incurred losses (or if you are aware of a retired or senior investor who did the same) you should consider your potential options for recovering your investment losses.
One good option includes a FINRA customer dispute. The customer dispute process at FINRA is a private arbitration process that is fast and efficient compared to court litigation. In addition, there are typically no depositions, as it is almost entirely paper-based discovery. You should contact experienced attorneys who might be able to assist you with these types of disputes.
About Haselkorn & Thibaut, P.A.
Haselkorn and Thibaut is a nationwide law firm specializing in handling investment fraud and FINRA arbitration cases. The law firm has offices in Florida, New York, Texas, and North Carolina. The two founding partners have nearly 45 years of legal experience.