Triad Advisors, an Advisor Group network brokerage firm, has been asked by the Financial Industry Regulatory Authority (FINRA) to pay a fine of $150K for supervisory failures pertaining to short-term trades involving Class A shares of mutual funds and variable annuity exchanges, in addition to repayment of $44K to customers financially affected by their failures. The Atlanta-headquartered broker-dealer has also been accused by FINRA of not making timely disclosures involving customer complaints and arbitration.
While consenting to pay the $44K to affected clients, Triad has neither admitted nor denied FINRA’s findings.
What is Mutual Fund Switching/Churning?
Available for an upfront sales fee which includes commissions, Mutual Fund Class A shares are expected to be held for long periods. This allows the upfront cost to be averaged out over many years, dulling its impact on the overall return.
Through switching, a customer sells the current mutual fund holding and uses the proceeds to buy into another. This results in them having to pay the upfront fee once again, this time for the new share purchased, without getting back any part of the fee paid for the earlier investment.
Each time this happens, an additional amount gets paid as fees.
Tracing the history of the case, FINRA dated the period of supervisory failures to between June 2015 and the second half of 2017, before Advisor Group merged with Ladenburg Thalmann Financial Services, the former owner of Triad Advisors,’ in 2020.
FINRA, the self-regulatory organization (SRO), found a broker of Triad Advisors doing short-term buying and selling and switching Class A shares, in 10 customer accounts which, they maintain, is the result of the inadequacy of their supervisory system that prevented compliance with suitability requirements relevant to short-term trading and switching of Class A shares.
Despite the investment objective in all these accounts is to preserve and grow capital and/ or earn income, they ended up holding Class A share mutual funds for under a year leading to an aggregated loss of $44K in 9 out of these 10 accounts.
Triad Advisors has also been accused of reporting failures based on non-disclosure of customer complaints and arbitration within the specified timeframe:
- 15 arbitrations that resulted in settlements of $25K or more, were reported more than 600 days late.
- 4 customer complaints naming one broker were reported 232 days late. The complaints were settled by Triad Advisors.
It is alleged that Triad Advisors failed to set up a supervisory system to analyze patterns of variable annuity exchanges and could not detect the high rates at which variable annuity exchanges were being done by their brokers.
What Can Investors Do?
Financial advisor fraud attorneys at Haselkorn & Thibaut have been investigating Triad Advisors in connection with the $1.7B GPB Ponzi scam, on the back of FINRA arbitration claims filed by them on behalf of investors. Triad is one of the many firms under review in this case.
If you have invested through a Triad Advisors broker and are worried about your investments, you can contact us by calling 1 888-628-5590.