As per the settlement letter recently finalized, Lynn Faust, a top South Carolina-based broker of Raymond James & Associates has been barred by the Financial Industry Regulatory Authority (FINRA) for three months, in addition to a fine of $5,000 being levied.
The broker in question is Lynn Faust who attracted the censure for unsuitable Unit Investment Trust (UIT) sales. Faust had earlier, in November 2018, been fired by Raymond James with similar issues being cited. She is a 40-year veteran of the brokerage industry.
According to her BrokerCheck profile, her career dates back to 1981 when she started with Waddell & Reed. She moved after a year to Paine Webber, where she spent five years, before moving to Raymond James and sticking with them
She had, at one time, occupied the top spot on Forbes’ list of the Top Women Advisor in the nation and the fourth position in the state with $265 million in assets under management.
As per an internal Raymond James document, in the populous Southern division of the firm based in St. Petersburg, Florida, she was the second-highest producer.
The Lynn Faust Case and Complaint
According to FINRA, approximately 4,500 ‘early’ rollovers of UITs were recommended by her from 2013 to 2017. Of these, in 2,200 cases, her recommendation to the customer was for exchanging one UIT for another with no apparent difference in investment objectives.
One of the primary results of these transactions was an additional fee burden on her customers. UITs, well known as packaged portfolios that include bonds and stocks, attract a sales charge of 3.95%. If rolled over early, however, an additional sales charge of 2.95% is attracted. As most customers who followed her advice exchanged their holdings well before the 2-year maturity period, they paid the additional fee.
According to FINRA, “Faust’s recommendations, which caused her customers to incur unnecessary excess sales charges, were unsuitable considering the frequency and cost of the transactions.”
She was one of many advisors fired by Raymond James in the wake of a furor over improper UIT sales. They paid $15 million to the Securities Exchange Commission (SEC) in a settlement which included restitution to the tune of $12 million representing excessive and improper fees recovered from customers.
Faust, along with others working with her, including her son Michael, had filed a defamation and wrongful termination suit against Raymond James in July 2019.
According to the team’s website and registration records, both Faust and her son have been with Stifel Financial in Greenville.
She sought personal damages of $6 million from Raymond James for “burning” her book, expungement, apart from deferred compensation amounting to $1.8 million. She also referred the firm to the enforcement unit of FINRA for their “fraudulent ‘internal investigation’ activities.”
All these cases did not amount to much. It is understood that a confidential settlement resulted with one of the parties paying $500 to the other. All other claims were denied by the panel.
Her Jupiter, Florida-based lawyer Marc Dobin, was unable to immediately comment on the settlement.
Wrapping up of the firms’ supervision of the sale of UITs was announced by FINRA in December. The investigation resulted in a total of $16.8 million paid as restitution and $6.6 million in fines by six firms.
Problems with Unit Investment Trusts (UITs)
Your broker might recommend that you invest in unit investment trusts (also known as “UITs”)? A retired couple in the Midwest lost a significant amount of their retirement savings when they were sold UITs by their broker. The couple suffered more than $400,000 in investment losses and the brokerage company earned $200,000 from trading these UITs. Although we were able to reach a favorable settlement, our clients should not have been allowed to sell those investments.
In our office, we have seen many cases where brokers push UITs onto their customers. UITs can sound very appealing to brokers. These are pre-selected stocks and bonds that are set aside for a certain time. They can also be packaged with an attractive strategy to help them achieve a particular goal.
UITs can be a poor replacement for regular mutual funds for many investors. UITs can be problematic because they are not actively traded and follow a buy-and-hold strategy. The trust terminates the portfolio, which is usually between 13 and 30 years, depending on the underlying holdings.
UITs cannot take any action or make investments decisions as a result of market declines or other events.
This can be especially problematic if units are in volatile or risky sectors. Prudence requires a prompt rebalancing. UITs can also be extremely expensive both when they are purchased first and when they disintegrate. Brokers are often pushing “short term strategy Trusts”, which typically dissolve within one to two years.