Brokerage Firm Review: Woodbury Financial Services

Woodbury Financial Services, Inc. (CRD#: 421) has many different complaints filed by the U. S. Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority, (FINRA), state regulatory organizations, and investors such as yourself. At the Law Offices of Robert Wayne Pearce, we have investigated Woodbury Financial Services, Inc. complaints (Woodbury), its regulatory problems, and represented investors with claims of fraud, negligence, and breach of fiduciary duty against this organization and its financial advisors.

If you believe you have a claim against Woodbury, you should strongly consider hiring an investment fraud lawyer. You should not wait until it’s too late to file a claim. The Law Offices of Robert Wayne Pearce, P.A., offers free consultations. Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Can I Sue Woodbury Financial Services?

If you’ve lost money caused by Woodbury and/or its employees’ misconduct then the answer is, YES,  you can sue Woodbury, but the odds are you signed away your right to sue in court and agreed to resolve your dispute in a FINRA arbitration proceeding.  Attorney Robert Wayne Pearce has over 40 years of personal experience in FINRA arbitration proceedings and knows very well how you can not only sue Woodbury in FINRA arbitration proceedings, but WIN that arbitration.

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

What Is Woodbury Financial?

The company was founded in 1968 and has been engaged in its broker-dealer and investment advisory businesses since that time. It is indirectly controlled by The Advisor Group, Inc. with branch offices located throughout the United States. Its independent broker-dealer Business Model has grown through acquisition and organic development of primarily one and two person registered representative offices supervised remotely. Today there are over 800 Woodbury branch offices with over 1200 registered representatives in almost every state. It is now one of the largest broker-dealer and investment advisory firms in the United States.

Woodbury Has Had Many Different Regulatory Problems 

Woodbury’s rapid growth has not been without consequences. There have been at least twenty-one Federal, state and self-regulatory body disclosure events; that is, 21 final and formal proceedings initiated by a regulatory authority (e.g., a state or federal securities agencies like the SEC, FINRA, and states who are members of the North American Securities Administrators Association (NASAA) ) for a violation(s) of investment-related rules or regulations. In addition, there have been scores of customer complaints filed against Woodbury for misconduct by its securities sales and investment advisory representatives that are not reported by the firm on its Central Depository Record. 

We have reported and written about these regulatory problems and customer complaints over many years. Woodbury is a repeat offender: there are at least 21 SEC, FINRA and state reported disciplinary proceedings citing the firm with one form of supervisory lapses or another in the last decade.

A BRIEF OVERVIEW OF SOME OF THE REGULATORY PROBLEMS WOODBURY HAS FACED OVER THE YEARS*

Woodbury has been repeatedly censured, warned, and fined for its own misconduct and failure to supervise its army of financial advisors. A few of the notable SEC and FINRA investigations for its misconduct are below:

SEC Orders Woodbury And Its Affiliates To Pay Over $2 Million To Investors

This proceeding arises from breaches of fiduciary duty and multiple compliance failures by Woodbury in its fee based advisory business. During the relevant period, Woodbury invested advisory clients in mutual fund share classes with 12b-1 fees instead of lower-fee share classes of the same funds that were available without 12b-1 fees. The affected clients were advisory clients whom Woodbury invested in a fee-based advisory service called the Advisor Managed Portfolio (“AMP”) in accounts that are not qualified retirement or ERISA accounts, where 12b-1 fees are rebated. In its capacity as a broker-dealer, Woodbury received 12b-1 fees paid by the funds in which AMP advisory clients invested. By investing these non-qualified advisory clients in the higher-fee share classes, Woodbury and its affiliates received approximately $2 million in 12b-1 fees that they would not have collected from the lower-fee share classes. Woodbury failed to disclose in their Forms ADV or otherwise that they had a conflict of interest due to a financial incentive to place non-qualified advisory clients in higher-fee mutual fund share classes. As a result, Woodbury breached its fiduciary duty as an investment adviser to certain of their AMP advisory clients by investing them in higher-fee mutual fund share classes. In addition, Woodbury failed to adopt any compliance policy governing mutual fund share class selection. It also failed to monitor advisory accounts quarterly for inactivity or “reverse churning” as required under their compliance policies and procedures to ensure that fee-based advisory or “wrap” accounts that charged an inclusive fee for both advisory services and trading costs remained in the best interest of clients that traded infrequently. This conduct violated Section 206 of the Investment Advisors Act of 1940.

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Woodbury Censured And Fined For Variable Annuity Supervisory Failures

During the Relevant Period, Woodbury’s system for supervising additions to existing variable annuities was not reasonably designed to achieve compliance with applicable securities laws and FINRA rules, including those governing suitability — a problem that affected more than 3,800 transactions during this period. Woodbury did not review additions resulting from recommendations to invest additional funds in existing variable annuity contracts, either before or after the transaction, unless the addition was funded from the proceeds of an exchange. Woodbury also did not use surveillance tools, such as exception reports, to monitor additions to variable annuities and provide the firm with information about potentially unsuitable transactions. As a result, Woodbury violated NASD Rule 3010 (for conduct before December 1, 2014) and FINRA Rules 3110 (for conduct on and after December 1, 2014) and 2010.

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Woodbury Censured And Fined For Unit Investment Trust Supervisory Failures

During the Relevant Period, Woodbury disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge (‘Eligible Customers’). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. Many mutual funds waive the up-front sales charges associated with Class A shares for certain retirement plans and/or charitable organizations. Some of the mutual funds available on the Firm’s retail platform during the Relevant Period offered such waivers and disclosed those waivers in their prospectuses. Notwithstanding the availability of the waivers, Woodbury failed to apply the waivers to mutual fund purchases made by Eligible Customers and instead sold them Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. These sales disadvantaged Eligible Customers by causing such customers to pay higher fees than they were actually required to pay. During this period, Woodbury failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, Woodbury violated F1NRA Rule 3110 and FINRA Rule 2010.

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Woodbury Censured And Fined For Failure To Reasonably Supervise The Sale of Multi-Share Class Variable Annuities

Woodbury failed to establish, maintain and enforce a supervisory system and written procedures designed to reasonably supervise representatives’ sale of multi-share class variable annuities and failed to provide training to their representatives and principals on the sale and supervision of multi-share class variable annuities. For example, the Firms’ procedures did not specifically address the suitability issues related to the different surrender periods, fees and costs of the different variable annuity share classes. Similarly, the Firm’s procedures did not specifically address the suitability concerns raised by the sale of an L-share contract when combined with a long-term income rider or to a customer with a long-term investment time horizon. As a result, the Woodbury violated FINRA Rules 2330(d) and (e), F1NRA Rule 3110, and FINRA Rule 2010.

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Woodbury Censured And Fined For Failing To Supervise Unit Investment Trust Sales Practice Abuse

During the Relevant Period, the Firm failed to apply sales charge discounts to certain customers’ eligible purchases of unit investment trusts (“UITs”) in violation of FINRA Rule 201 0.  Time and again, FINRA has reminded members that they should develop and implement procedures to ensure customers receive available sales charge discounts for UITs.  FINRA has stated that UIT transactions must take place “on the most advantageous terms available to the customer” and that it is the firm’s responsibility to “take appropriate steps to ensure that they and their employees understand, inform customers about, and apply correctly any applicable price breaks available to customers in connection with UITs.”  The Firm failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that customers received sales charge discounts on all eligible UIT purchases in violation of NASD Conduct Rule 3010 and FINRA Rule 2010.

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Woodbury Censured And Fined For Failing To Supervise Excessive Trading Sales Practice Abuse

Woodbury failed to establish, maintain and enforce an adequate system to review equity trades for excessive trading. Specifically, Woodbury’s written supervisory procedures required equity trades to be reviewed for appropriateness of commissions, excessive trading and suitability where trades were solicited.The Firm primarily relied upon its Trade Desk to identify excessive trading by reviewing the Firm’s Daily Trade Commission Report (the “Trade Report”). The Trade Report did not include the number of shares purchased or sold, the total cost of the transaction, the account name, or the age, investment experience or risk tolerance of the account holder. In addition, the Firm did not utilize any exception reports or systems that delineated the average holding periods, commission v. equity ratio, or the turnover ratio in customer accounts.As a result, at all times relevant, the Firm failed to establish and maintain an adequate system of follow-up and review for the Firm to determine whether its registered representatives were engaged in excessive and therefore unsuitable equity trades.

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Woodbury Censured And Fined For Variable Life Insurance Supervisory Failures

During the Relevant Period, Woodbury failed to establish an adequate supervisory system and failed to implement adequate supervisory procedures to review the suitability of variable life insurance applications. Specifically, Woodbury’s then existing procedures did not require that persons responsible for conducting suitability reviews of variable life applications and for approving those applications, in connection with that review, to: 1) consider the customer’s ability to afford premium payments; 2) consider whether the customer had existing life insurance policies and required additional insurance; 3) consider the customer’s liquidity needs; or 4) consider the method by which the customer would fund the policy. In certain instances, these supervisory failures resulted in 1) customers owning policies that required annual premium payments equaling a significant percent of the customer’s stated annual income; 2) sales to customers who had no need for the insurance being offered; and 3) customers withdrawing money from IRA accounts in order to fund the policy. As a result, Woodbury violated NASD Conduct Rules 3010(a) and (b) and Rule 2110.

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Why Does Woodbury Have So Many Regulatory Problems And Customer Complaints?

Independent broker-dealers are notorious for their lax supervisory practices and procedures. The business model of these franchise type operations is to open many offices nationwide for steady growth of fixed monthly revenues without the costs attendant to a full-service branch office with on-site manager, compliance officer and operation personnel. The registered representatives of these independent broker-dealers generally operate as separately incorporated businesses. They are not employees of the broker-dealer and therefore not controlled in the same manner as full-service brokerage firm representatives. The registered representatives control their structure and costs to maximize profits and often leave the protection of investors’ rights and interests as their lowest priority.

The typical supervisory organization of independent broker-dealer operations is to have other independent contractors operate Offices of Supervisory Jurisdiction (OSJs) to monitor the registered representatives from geographically remote offices and then report to the main franchisor’s compliance office at national headquarters. The supervisors at the OSJs are not employees of the franchisor and often run their own brokerage, insurance and other businesses. They are not devoted full-time supervisors of the smaller branch offices. Consequently, OSJ managers cannot and do not supervise the day-to-day operations of the registered representatives of these Independent broker-dealers. 

Generally, there is no immediate review of new accounts opened, securities transactions, business records, cash or securities receipts and deliveries, correspondence and business activities unrelated to the securities brokerage operation at these independent brokerage firms. The lax supervision leaves investors who have transferred their accounts to the smaller independent broker-dealer vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission. There may be no person onsite to detect forgeries of clients’ signatures on documents, the placement of inaccurate information about a client’s investment objectives and financial condition to document the suitability of a particular investment recommendation. Oftentimes there is no daily review of sales literature and client correspondence to protect against misrepresentations and misleading statements being made to investors. In fact, it is not unusual for there to be only one compliance audit visit per year at many of these offices.

These independent brokerage business operations are worrisome to the North American Securities Administrators Association (NASAA), which has documented more instances of sales abuse and consequently investor losses at these firms than the traditional brokerage firms with branch offices with on-site managers and compliance personnel.

Did Woodbury Financial Advisor Misconduct Cause You Investment Losses?

When financial advisor misconduct has caused you to lose substantial value to your investment accounts, you have the right to seek reimbursement from the responsible parties. Woodbury is responsible like any employer for its financial advisors’ acts and omissions. In addition, it has an independent duty to supervise its stockbrokers and investment advisors. These cases can be extremely complex, and so having the support of a reputable attorney who is experienced in recovering investment losses for investors is key to your success. Many customers make the mistake of contacting Woodbury without attorney representation about their complaints and have their complaints denied.

Related Read: Can You Sue Your Brokerage Firm?

Investment Losses? We Can Help

Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.

Get A Free Consultation

or, give us a ring at (800) 732-2889.

Consult With An Attorney Who Recovers Investment Losses Caused By Woodbury Financial Advisors Today!

The securities lawyers at The Law Offices of Robert Wayne Pearce, P.A., have helped countless investors over the last 40 years recover the losses from their investment accounts that were caused by broker negligence or misconduct. The firm has extensive experience with Woodbury cases, and Attorney Pearce is committed to seeing that those responsible for the losses you have suffered are held fully accountable.

Give us a call at 800-732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.

Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $170 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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