LPL Financial, boasting more than 16,000 affiliates, has declared a stoppage in the sales of non-traded REITs due to a series of lawsuits and grievances lodged against them. The firm probably views this temporary cessation as distinct from previous errors, such as the continued transactions observed throughout the financial downturn of 2008-2009. However, there’s critique that this measure is merely superficial, suggesting that the action taken is both minimal and delayed. Part of the reasoning given includes challenges in valuing real estate prompted by the Covid-19 pandemic, hinting that this problem might just be the beginning.
The lack of transparent pricing has not stopped the financial advisors from selling billions of dollars of these securities, often in the firm of non-traded REITs to investors. In some instances, those sales are unsuitable, the products and underlying investments are misrepresented, and investors (some retired or elderly) find themselves with illiquid, risky investments they cannot even understand.
LPL Complaints and Lawsuits
LPL Financial has a history of REIT-related issues and complaints:
- LPL Financial LLC, according to FINRA Brokercheck has 236 separate disclosures (176 of them regulatory disclosures, several specifically relating to sales of non-traded REITs:
- In 2013, LPL Financial was fined by Massachusetts Securities Regulators related to REIT sales.
- In 2015, LPL Financial was the subject of a case brought by the New Hampshire securities regulators involving REIT sales. Also in 2015, LPL Financial entered an Acceptance, Waiver & Consent (AWC) that neither admitted nor denied the allegations, which related to (among other issues) sales practice issues of non-traded REIT investments. LPL Financial was censured and fined $10 million by securities regulators.
- That came on the heels of another FINRA AWC in 2014 that resulted in a fine and included allegations related to non-traded REIT transactions and inadequate supervisory procedures.
- In 2017, LPL Financial caught the eye of securities regulators in other states such as New Jersey arising from LPL Financial’s failure to properly supervise sales of illiquid alternative investments to customers, including non-traded REITs and non-traded BDCs. In 2018, one of the LPL Financial regulatory disclosures noted above specifically relates to sales of non-traded REITs and issues with the North Carolina, District of Columbia and alleged failure to implement an adequate supervisory system and enforce its procedures regarding the sales of non-traded REITs. In 2017, another regulatory disclosure involves the State of Virginia Maine, and in the State of Vermont.
- In 2016, there were similar issues in the State of Montana, State of Hawaii, and State of Louisiana, Wyoming, Oklahoma, Oregon, South Carolina, Arkansas, Ohio, Tennessee, Wisconsin, U.S. Virgin Islands, Kentucky, Alabama, North Dakota, Kansas, Washington, California, Colorado, Florida, Iowa, Michigan, Minnesota, Nebraska, Georgia, Idaho, Mississippi, Puerto Rico, New Mexico, South Dakota, Indiana, Texas, Alaska, Missouri, Utah, Pennsylvania, Nevada and in State of Maryland (as part of a multistate task force investigation with the North American Securities Administrators Association, Inc. (NASAA) regarding the sales of non-traded REITs. LPL Financial neither admitted nor denied the findings of fact and conclusions of law contained in a Consent Order.
