FINRA Fines Financial Advisory Firm After Elderly Client Was Loaded Up on Margin

Posted on September 27th, 2022 at 1:04 PM
FINRA Fines Financial Advisory Firm After Elderly Client Was Loaded Up on Margin

From the Desk of Jim Eccleston at Eccleston Law.

The Financial Industry Regulatory Authority (FINRA) has agreed to an $86,000 settlement with SagePoint Financial over allegations that the firm failed to effectively supervise its advisors’ use of margin in client accounts.

The settlement includes nearly $52,000 in restitution to two clients who were permitted to leverage their portfolio even though they were ineligible for margin loans pursuant to firm policy, according to FINRA. FINRA alleged that SagePoint compliance officials failed to further investigate red flags indicating that the margin lending was unsuitable for the clients. The margin loans, which enables a client to use their portfolio as collateral to purchase more securities, normally exposes the client to increased costs and heightened volatility.

According to FINRA, in one case, a 79-year-old widow with $35,000 in annual income and a “moderate” risk tolerance was permitted to take out a margin loan even though company policy restricts granting margin loans to clients over 70 with income below their annual expenses. In another instance, a 56-year-old with a “moderate” risk tolerance was allowed to leverage 20-46% of the portfolio even though the client was ineligible pursuant to firm policy, according to FINRA. SagePoint consented to the fine without admitting or denying any of FINRA’s investigatory findings, according to FINRA.

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.

Tags: eccleston, eccleston law, advisors, finra

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