The Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth (the "Division") filed a Complaint against a broker-dealer and its agent for allegedly violating state securities laws. In particular, the Division alleged that Royal Alliance Associates, Inc. ("RAA") engaged in supervisory failures with regard to "unsuitable recommendations" made by a sales representative to a pair of senior Massachusetts residents (the "investors").
According to the Complaint, the representative allegedly breached his fiduciary duty by recommending an unsuitable annuity exchange and by ignoring various notices regarding the product's unsuitability. The Division claimed that the representative failed to act in the best interests of the investors by advising them to exchange their existing annuity products, which required the investors to pay a surrender penalty, for annuity products paying lower rates.
Further, the Division reported that RAA failed to adequately supervise and review the exchange to determine if there was an "economic justification" for his recommendation.
Commentary / Conor Almquist
Notable here is that the duty to supervise the alleged misconduct came largely from the firm's own written policies and procedures. Firms should regularly review their policies and procedures to ensure that they are performing reviews they intend to perform, and, if not, they should revise their policies and procedures to align with their actual practices (assuming their actual practices are legally sufficient).
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