FINRA ordered Stifel Nicolaus to pay over $2 million in fines and restitution for failing to take reasonable steps to detect and respond to "hundreds" of potentially unsuitable recommendations regarding non-traditional exchange-traded products ("NT ETPs"), resulting in significant losses.
According to the findings, Stifel Nicolaus failed to establish, maintain, and enforce a supervisory system designed to ensure that its brokers' recommendations to clients remained suitable and compliant with industry rules regarding risk.
While Stifel Nicolaus did possess written supervisory procedures that stated, "leverage and inverse ETPs [aka NT ETPs] are complex risky products [that are] typically not suitable for retail investors who plan to hold them for more than one trading session," FINRA found that the policies failed to require supervisors take specific steps to review suitability issues, and that despite the warnings, brokers nonetheless recommended unsuitable products to customers, including recommending that low-to-moderate risk customers hold NT ETPs for more than one trading session.
Due to its supervisory failures, elderly customers with conservative-to-moderate risk tolerances suffered realized losses due to unsuitable recommendations to hold NT ETPs for long periods; FINRA pointed to the case of an 87-year-old customer at Stifel with conservative risk tolerance whose account held a daily-reset NT ETP for 454 days, while a 77-year-old customer with moderate growth risk tolerance held an NT ETP for over a year. Both customers suffered losses totalling $18,000.
This isn't a new issue for Stifel Nicolaus.
Stifel in 2014 paid over $1 million to settle charges brought by FINRA that the firm failed to establish and maintain adequate supervisory systems in its non-traditional exchange-traded fund ("NT ETF") business.
Despite the 2014 censure and fine, FINRA found that during the most recent review period, representatives recommended 438 daily-reset NT-ETPs that were held for more than seven days and 45 monthly-reset NT-ETPs held for more than 60 days, collectively resulting in realized losses exceeding $1.2 million in 381 accounts.
If you invested with Stifel Nicolaus or with any broker, investment adviser, or firm who inappropriately and unsuitably recommended you purchase a complex or risky product and hold it for a long period of time despite the product's short-term design, and these improper transactions have resulted in losses or other damages, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.