Massachusetts Charges Schwab for Compliance Failures

The Massachusetts Secretary of the Commonwealth William F. Galvin has charged Charles Schwab for compliance blind spots that allowed a former investment advisor to continue receiving advisory fees from client accounts even after his registration had lapsed and he was no longer on the firm’s custody platform. Galvin’s office claims James Patrick O’Connell, a former investment advisor in Gloucester, Mass., banked $125,000 in fees after he was no longer registered with the state.

Galvin’s office started investigating O’Connell after it received complaints that he was exploiting senior citizen investors in the state. O’Connell was registered as an investment advisor with his own RIA firm, JP OConnell Financial, from 2007 to 2010 and again from 2013 to 2014, and custodied his client assets with Schwab during those periods, according to public records.

O’Connell was removed from Schwab’s custody platform in 2012 for allowing his registration to expire, according to Galvin’s complaint. But when he re-registered in 2013, he was back on the Schwab platform, and when his registration lapsed for the second time at the end of 2014, the custodian paid him $46,000 in advisory fees from two Schwab brokerage accounts alone.

“As of the date of this action, Schwab continues to have no policies or procedures designed to monitor customer accounts following the removal of a third-party advisor to ensure compliance with Massachusetts law,” Galvin’s complaint says. “Based on its investigation, the Division believes that issues related to Schwab’s compliance failures, highlighted herein, extend beyond the scope of this administrative complaint.”

“We are dedicated to giving our clients the highest level of confidence when doing business with us and take our obligations to them extremely seriously,” said Mayura Hooper, Schwab spokeswoman. “We are committed to earning our clients’ trust and work diligently to fulfill our compliance responsibilities.”

The complaint also alleges that the investment recommendations that O’Connell was making to clients were unsuitable, overconcentrating portfolios in global communication infrastructure companies, for instance.

“Such over-concentration of a portfolio in one specific market sector poses a substantial risk to any investor, but the risk of such over-concentration is especially acute here, given that most of O’Connell’s clients are seniors,” the complaint says.

O’Connell could not be immediately reached for comment.

The state seeks reimbursement to O’Connell’s clients for the fees paid to the advisor while he was unregistered, as well as fines against O’Connell and Schwab. The regulator also believes Schwab should be required to complete an independent compliance review.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *