Kestra Investment Services (CRD#: 42046) is a Texas-based brokerage firm that is licensed to operate in all 50 states as well as in several U.S. territories. Prior to 2014, this firm was part of NFP Advisor Services, LLC.
Here we’ll look at several notable regulatory sanctions and customer complaints and disputes that have been brought against Kestra Investment Services.
Kestra Investment Services: Customer Disputes and Regulatory Actions
Excessive Markups Charged to Customers
In June of 2012, while Kestra Investment Services was still operating as NFP Advisor Services, LLC, the firm was accused of charging excessive markups on a customer account. Specifically, this misconduct occurred when the firm:
- Purchased riskless principal corporate bonds;
- Immediately added a markup to the product; and
- Sold the bonds to its customers on the very same day of the initial purchase.
Given the circumstances, FINRA regulators determined that such a markup was neither fair nor reasonable. Indeed, the markups being charged by this brokerage were far higher than what was charged by other firms in the industry under similar conditions. As a result of the findings, the NFP Advisor Services, LLC (Kestra) was publicly censured and ordered to pay affected customers financial restitution totaling $43,121.39.
Breach of Fiduciary Duty, Negligence
In 2013, a former customer sued NFP Advisor Services, LLC (Kestra Investment Services) for breach of fiduciary duty and negligence. Eventually, this claim went before a public FINRA arbitration panel (Case Number: 13-00430). The panel found in favor of the client, awarding them $1,246,155.00 in damages. Notably, this claim involved the misuse of Real Estate Investment Trusts (REITS), a complex investment product. REITs are notoriously risky, and they caused investors around the country huge losses during the subprime mortgage crisis, which crushed real estate values.
Failure to Supervise a Representative’s Private Securities Transactions
Under FINRA Rule 3280, individuals are required to disclose their private securities transactions to their member firm. Upon receiving such a notification, the member firm in question must then choose to either: 1) allow the representative to go forward with the private transaction, or 2) instruct them to stop the activity. If a registered broker-dealer does allow its representatives to engage in private securities transactions, then that firm becomes legally responsible for supervising those transactions.
In this case, Kestra Investment Services failed to live up to their legal obligation to supervise and review the private securities transaction of its brokers. One of the firm’s representatives disclosed to compliance officers that he was managing an investment fund as an outside business activity.
Upon receiving this disclosure, Kestra Investment Services failed to follow up on the issue, and did not supervise his private securities transactions. Without admitting or denying any fault in the case, the Texas-based broker-dealer consented to the sanctions, which included public censure and a fine of $500,000.
Unsuitable Investment Recommendations
In November of 2016, brokers at Kestra Investment Services were accused of recommending unsuitable investments to customers. More specifically, FINRA regulators found that several different individual brokers at the firm were aggressively pushing multi-share class variable annuities on clients.
Approximately 20 percent of these variable annuities were classified as L share annuities. Indeed, across the entire firm, sales of these L share variable annuities totaled more than $52 million.
L share variable annuities comprise a product that comes with higher fees. In exchange for these fees, customers receive the benefit of a shorter surrender period. Of course, this type of trade-off only makes sense for a very limited number of investors. For most investors, a shorter surrender period offers them little or no benefit at all.
In this case, regulators determined that Kestra Investment Services brokers were selling expensive L share variable annuities to many customers for whom such an investment was wholly inappropriate. As a result of that misconduct, the firm was publicly censured and ordered to pay $475,000 in financial penalties.
At Sonn Law Group, we have extensive experience handling all types of investment fraud claims. Please call us today at 844-689-5754 or email us through our website to set up a free review of your claim. We have an office in Houston, and serve wronged investors in Texas, Florida and throughout the United States.