Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Michael Kerper (Kerper), previously associated with Rnr Securities, L.l.c., has at least one disclosable event. These events include one tax lien, alleging that Kerper recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on September 26, 2024.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Federal Prep Advisors, Inc. and Michael Kerper (collectively ‘Respondents’). In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement which the Commission has determined to accept. The commission finds that Since at least June 2020, in advising more than 300 clients to roll over assets totaling more than $80 million from Thrift Savings Plan (‘TSP’)1 accounts to advisory Individual Retirement Accounts (‘IRAs’), Commission-registered investment adviser Federal Prep Advisors, Inc. (‘Federal Prep’) and its principal, Michael Kerper (‘Kerper’) provided information regarding TSP fees, TSP investment options, and IRA money manager fees that was false or that omitted material facts. This included telling clients that TSP fees were .50% when in fact TSP fees were approximately one-tenth that amount and continuing to provide that inaccurate information to clients after the Commission’s Division of Examinations (‘SEC Exams’) notified Kerper of the inaccuracy. Moreover, despite the low costs of the TSP and the significantly higher costs associated with the advisory IRA recommended by Federal Prep and Kerper-Federal Prep clients pay advisory fees plus third-party money manager and underlying investment fees that often total 1.50% to over 2.00% per year-Federal Prep and Kerper did not adequately consider any total fee comparisons in advising clients to roll assets out of their TSP accounts, nor did Federal Prep or Kerper have an adequate understanding of the total costs associated with the rollover investment strategy that they recommended to clients. Federal Prep and Kerper also failed to adequately consider, and lacked an adequate understanding of, the investment options available within the TSP and how those options compared to the investments that they recommended clients make in a rollover advisory IRA. Kerper is the Chief Executive Officer (‘CEO’), Chief Operating Officer (‘COO’), and an Investment Adviser Representative (‘IAR’) of Federal Prep. Kerper was also Federal Prep’s Chief Compliance Officer (‘CCO’) until May 21, 2024 when he stepped down from the CCO position and Federal Prep retained a new CCO who had prior experience working in a compliance capacity. Federal Prep failed to, and Kerper took no action to, adopt and implement written policies and procedures intended to ensure that Federal Prep adhered to the fiduciary duty that it owed to clients, including when providing rollover or other investment advice. For example, despite having policies and procedures requiring that they do so, Federal Prep and Kerper did not fill out the investor profile form that was specified in Federal Prep’s policies and procedures and that it said it would use to supervise and direct client investments, nor did they prepare a checklist to document whether their rollover advice was in the best interest of their clients. Federal Prep also failed to retain, and had no written policies and procedures regarding, text messages sent or received by IARs to or from clients and prospective clients relating to advice given or proposed to be given, disbursement of funds or securities, or the placing or execution of securities transactions. As a result, and as detailed below, Federal Prep willfully violated Sections 206(2), 206(4), and 204 of the Advisers Act and Rules 206(4)-7 and 204-2 thereunder, and Kerper willfully violated Section 206(2) of the Advisers Act and caused Federal Prep’s violations of Sections 206(4) and 204 of the Advisers Act and Rules 206(4)-7 and 204-2 thereunder.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This standard applies when a registered representative is providing investment advice through making recommendations customers and covers securities transaction, investment strategies, and recommendations concerning advice on opening of an account or accounts. Reg BI is drawn from fiduciary principles that include an obligation to act in the retail investor’s best interest and the broker is prohibited from placing their own interests ahead of the investor’s interest.
There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which requires brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations includes three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions. Next, the advisor must have a reasonable understanding of the specific retail investor’s investment profile. The customer’s profile information generally includes an investor’s financial situation and needs; investments; assets and debts; marital status; tax status; age; investment time horizon; liquidity needs; risk tolerance; investment experience; investment objectives and financial goals; and any other information the retail investor may disclose in connection with the recommendation or advice. Finally, the financial advisor must use their knowledge of both their reasonable diligence into investment options as well as their knowledge of the investor’s client specific needs to consider reasonably available investment options. Those investment options must allow the broker to determine that there is a reasonable basis that the recommendation is in the retail investor’s best interest.
In addition to specific investments being recommended, under Reg BI, a broker must also understand the type of account that their client would need in order to meet their care obligations. The SEC has stated that the type of securities account an investor has can greatly affect a customers’ costs and overall investment returns. Further, different account types can offer and support different features, products, securities, or services, and account type would not be appropriately applied in a one size fits all manner.
Kerper has been in the securities industry for more than 23 years. Kerper has been registered as a Broker with Rnr Securities, L.l.c. since 2013.
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.
