PKS, a Favorite Broker of RIAs, Hit with $200K Finra Fine
The Financial Industry Regulatory Authority plans to censure Purshe Kaplan Sterling Investments and fine it $200,000 for failing to review its brokers’ outside business activities and the performance reports they marketed to the public, according to a letter posted on the regulator’s enforcement website this week.
The finding is notable because of the key role that PKS plays in the trend of former brokers “breaking away” to become registered investment advisors who operate under a fiduciary standard of client care. PKS specializes in giving such RIAs a place to park their brokerage licenses so they can continue to collect trails and other commissions from their former jobs.
The Albany, New York-based firm has grown quickly in the past decade, receiving referrals from Charles Schwab Corp, TD Ameritrade, Fidelity Investments and other custodians who offer transitional services to breakaway brokers and sell brokerage and other services to their RIA clients. Almost 57% of PKS’s 1,234 registered reps across the U.S. are so-called hybrid advisers who are dually registered as RIAs and brokers, according to the consent letter.
From 2011 through the end of 2015, Purshe Kaplan failed to properly evaluate whether its brokers were violating “selling away” rules that would allow them to sell private securities unsupervised by PKS, according to the letter of acceptance, waiver and consent signed by the firm’s lawyers that is posted on the FINRA website.
PKS also accepted sanctions for failing to review any performance reports that brokers gave to clients and prospects from early 2012 through mid-2014 or have procedures for such reviews.
The firm, which neither admitted nor denied the findings, agreed to submit a written plan to Finra detailing how it will fix its policies and procedures regarding selling-away rules and performance claims.
In February 2011, PKS was fined $100,000 and censured for failing to have systems for supervising the suitability and processing of variable annuity sales made by its brokers, according to its record in BrokerCheck database. The finding came after a former PKS broker “misappropriated” $41,300 from a customer by submitting three separate check request forms in that customer’s name.
David M. Purcell, PKS’s general counsel, and Brian Hamburger, a New Jersey-based lawyer active in setting up RIA practices who represented PKS, did not immediately return calls for comment.