Minneapolis-based RBC Wealth Management must pay a $1 million fine to the Financial Industry Regulatory Authority (FINRA) and more than $435,000 in restitution to customers to settle charges.
RBC "failed to have in place supervisory systems and procedures" to prevent the sale of a complex product called "reverse convertible notes," unsuitable for risk-averse customers, that were sold by 99 RBC representatives between 2008 and 2012, according to FINRA.
The agency, in a settlement of the enforcement matter it accepted Thursday, said 218 customers who improperly were sold the product lost $1.1 million. RBC previously made unspecified payments to more than 100 customers who sued the firm in California.
In a statement Thursday, RBC Wealth Management said, "We fully cooperated with FINRA throughout the investigation. Beginning in early 2013, we made process improvements as well as policy and procedure changes regarding reverse convertible notes to ensure proper supervision and controls. We continually evaluate our practices and make enhancements to ensure we are meeting the needs of our clients, serving their best interests and helping them reach their financial goals, as well as ensuring the integrity of our business."
FINRA said this is the third time in six years that it has censured and fined RBC Wealth Management for inadequate supervisory controls designed to protect customers from inappropriate products and sales tactics.
FINRA warned member securities firms in 2010 to ensure reverse convertibles were sold only to select customers based on their financial strength, risk appetite, goals and other measures that are to considered in determining appropriateness of client investments.
Regulators are concerned that individual investors often do not understand how such synthetic "structured products" work and why they may be more volatile in performance than stocks and bonds. Reverse convertibles are interest-bearing notes in which principal repayment is linked to the performance of a reference asset, such as a stock or stock index.
The industry regulator said RBC Wealth Management, which oversees 5,300 licensed representatives at 280 offices in the United States, executed 5,600-plus reverse convertible transactions for customers that failed to meet at least one or more of the three requisite criteria necessary to be suitable.
