Securities Research, Inc. of Florida (CRD #6516, Vero Beach, Florida)

Securities Research, Inc. of Florida (CRD #6516, Vero Beach, Florida)

September 13, 2024 – An AWC was issued in which the firm was censured, fined $60,000, ordered to pay $49,253.72, plus interest, in restitution to customers, and required to certify that it has remediated the issues identified in the AWC and implemented reasonably designed written policies and procedures, and a supervisory system, including WSPs. The restitution order reflects excess sales charges and fees incurred by four customers to whom the firm has not yet paid full restitution. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to establish and maintain a system reasonably designed to supervise short-term Class A mutual fund switching, and it failed to supervise switches effected by a registered representative in senior customer accounts. The findings stated that the firm’s procedures failed to describe the steps that supervisors must take when conducting monthly reviews of short term mutual fund switches, and the firm failed to establish a system reasonably designed to determine whether short-term mutual fund switches were suitable and in the customer’s best interest. The firm has not used tools offered by its clearing firm or any reasonable alternative designed to achieve compliance with FINRA Rule 2111 and the Care Obligation of Rule 15l-1 (Reg BI) of the Securities Exchange Act of 1934 (Exchange Act) in connection with short-term switches. Instead, the firm has relied on its supervisors’ manual review of a monthly report of mutual fund transactions. This report, however, has omitted the information necessary to identify whether a transaction constitutes a short-term sale, such as the date that the mutual fund was purchased. Although the firm’s supervisors sometimes manually researched this information, they did not do so consistently, and the firm’s WSPs did not require that they do so. In addition, the firm’s written policies and procedures requiring registered representatives to consider reasonably available alternatives when making recommendations to retail customers did not detail the steps that they must take to comply with the requirement when recommending mutual fund switches. Nor have the firm’s WSPs described what supervisors must do to review representatives’ consideration of reasonably available alternatives. As a result of these supervisory deficiencies, the firm failed to take reasonable steps to review the representative’s recommendations of short-term switches of mutual funds. The representative’s recommendations were unsuitable or not in the best interest of the customers. The firm manually flagged some of the short-term switches that the representative effected in the customers’ accounts, but it largely confined its supervisory review to confirming that the customers had approved them. The firm did not assess whether the representative exercised reasonable diligence in recommending the transactions, either before or after the transactions took place. Further, for a few of the transactions, the firm did not review whether the representative exercised reasonable diligence, care, and skill to consider reasonably available alternatives, including mutual fund share classes in the same fund family as the customers’ existing holdings, or different mutual fund share classes, that may have achieved the customers’ objectives at a lower cost. The firm failed to assess whether the transactions were suitable for or in the best interest of the customers, who collectively paid $43,724.87 in excessive sales charges. The findings also stated that the firm failed to establish, maintain, and enforce a system, including written procedures, reasonably designed to supervise the application of: (1) sales charge waivers to which customers are entitled through exchange privileges offered by mutual fund companies; and (2) sales charge waivers and fee rebates to which customers are entitled through rights of reinstatement offered by mutual fund companies. As a result, customers paid $51,600.42 in excess sales charges and fees relating to mutual fund exchanges. (FINRA Case #2021069353202) If you have suffered losses as a result of Securities Research, Inc. of Florida's act and/or actions, we would like to hear from you. We are currently investigating claims on behalf of clients who have suffered significant losses in their portfolios that are managed by Securities Research, Inc. of Florida. The Schwartz Law Firm represents investors in claims against financial advisors and their firms. If you have questions about your potential claim or need assistance from an investment fraud lawyer, please contact us at 866-618-0545 or email Matthew Schwartz directly at mschwartz@tslfirm.com.