Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Robert Hillard (Hillard), currently associated with Arlington Securities, Inc., has at least one disclosable event. These events include one tax lien, alleging that Hillard recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on December 11, 2024.
Without admitting or denying the findings, the firm and Hillard consented to the sanctions and to the entry of findings that Hillard recommended that 14 customers liquidate their lower-cost Class A and Class C mutual funds to purchase higher-cost variable annuities without having a reasonable basis to believe the transactions were suitable. The findings stated that when some of the Class C share mutual funds that Hillard had previously sold to his customers began to convert to Class A shares, these conversions resulted in a substantial decrease in Hillard’s personal income. Hillard expected other Class C shares would also convert to Class A shares, further reducing Hillard’s ongoing trail commissions. The investment-only variable annuity, unlike the customers’ mutual fund holdings, charged additional fees, resulting in an increase in the customers’ annual expense. Hillard provided substantially identical written rationales for all of these recommendations without consideration of the differences in the individual profiles of each customer. As a result of Hillard’s unsuitable recommendations, his customers collectively paid an additional $67,026.47 in annual fees. The findings also stated that the firm’s supervisory system, including its WSPs, were not reasonably designed to achieve compliance with FINRA’s suitability requirements regarding recommendations to sell mutual funds or purchase variable annuities. The firm’s WSPs failed to describe the steps that supervisors must take to review the suitability of these transactions, including the identification of potential red flags that the recommendation is not consistent with the customer’s investment profile. The firm also failed to analyze whether there was any benefit to purchasing an investment-only variable annuity in a qualified account, or whether the customers’ objective of making fund transfers easier could be accomplished through cost-free exchanges within the same mutual fund family. Finally, the firm failed to reasonably review the suitability of Hillard’s recommendations that his customers liquidate their mutual funds in order to purchase higher-cost variable annuities. The firm failed to consider that the customer’s ongoing fees on their existing mutual funds had or would decrease by converting to Class A shares, which would further increase the differential in fees with the investment-only variable annuity.
Under the securities laws brokers are obligated to act in their clients’ best interests and provide only suitable recommendations for investments to the client. In addition, the SEC has promulgated ‘Regulation Best Interest (Reg BI)‘ which according to the SEC enhanced the broker-dealer standard of conduct beyond existing suitability obligations and requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. Regulation Best Interest and the fiduciary standard for investment advisers are drawn from key fiduciary principles that include an obligation to act in the retail investor’s best interest and not to place their own interests ahead of the investor’s interest.
Brokers have an obligation to first obtain and evaluate sufficient information about a retail investor to form a reasonable basis to believe the account recommendations are in the retail investor’s best interest. Recommendations cannot be based on materially inaccurate or incomplete information. Every recommendation’s cost and investor details are essential parts of material information. Types of costs that must be considered including account fees, commissions and transaction costs, tax considerations, as well as indirect costs.
In addition to obligation to understand the customer the broker must also investigate the product being sold. FINRA firms have an obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings. A brokerage firm has a special relationship with a customer from the fact that in recommending the security, the broker represents to the customer that a reasonable investigation has been made. Accordingly, a brokerage firm may not rely blindly upon the issuer for information concerning a company in lieu of conducting its own reasonable investigation.
Additional, it should be required to mandate broker disclosures for investor’s protection. Brokers must publicly disclose reportable events on their BrokerCheck reports that include customer complaints, IRS tax liens, judgments, investigations, terminations, and even criminal matters. FINRA has acknowledged that recent studies provide evidence of the predictability of future regulatory and customer complaint issues for brokers with a history of such events. FINRA’s Office of the Chief Economist (OCE) published a study showing the predictability of disciplinary and disclosure events based on past similar events. The OCE study showed that past disclosure events, including regulatory actions, customer arbitrations and litigations of brokers, have significant power to predict future investor harm. The data shows that where a member firm on-boards brokers with a significant history of misconduct there is a high likelihood that the broker will continue to engage in similar behavior.
Hillard entered the securities industry in 1981. Hillard has been registered as a Broker with Arlington Securities, Inc. since 1990.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.
