Brokerage Firm Review: Commonwealth Financial Network

Commonwealth Financial Network (CRD# 8032) has many different complaints filed by FINRA (Financial Industry Regulatory Authority), state regulatory organizations, and investors such as yourself. At the Law Offices of Robert Wayne Pearce, we have investigated Commonwealth Financial Network, its regulatory and customer complaints, and have also 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 Commonwealth Financial Network, 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 Commonwealth Financial Network?

If you’ve lost money caused by Commonwealth Financial Network and/or its employees’ misconduct then the answer is, YES,  you can sue Commonwealth Financial Network 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 Commonwealth Financial Network in FINRA arbitration proceedings, but WIN that arbitration. The easiest way to know if you have a viable case against Commonwealth Financial Network is to call Attorney Pearce at our office at 800-732-2889.

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 Commonwealth Financial Network?

Commonwealth Equity Services, LLC doing business as Commonwealth Financial Network (CRD# 8032)  first became registered as a broker-dealer with the SEC and FINRA IN 1979. Since then there has been a name change and restructuring of its organization. The company is controlled by CFN Holding Company, LLC and headquartered in Waltham, Massachusetts with branch offices 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 1000 Commonwealth Financial Network branch offices with over 2500 registered representatives in every state.  It is one of the top 50 independent broker-dealer and investment advisory firms in the United States.

Commonwealth Financial Network Has Many Different Regulatory Problems 

Commonwealth rapid growth has not been without consequences. There have been approximately 23 Federal, state and self-regulatory body disclosure events; that is, final and formal proceedings initiated by a regulatory authority (e.g., a state or federal securities agency like the U.S. Securities and Exchange Commission (SEC) or self-regulatory body like the Financial Industry Regulatory Authority (FINRA) and 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 Commonwealth 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. Commonwealth is a repeat offender: there are over 9 SEC and FINRA 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 COMMONWEALTH FINANCIAL NETWORK HAS FACED OVER THE YEARS*

Commonwealth Financial Network has been repeatedly censured, warned, and fined millions for its own misconduct and failure to supervise its army of financial advisors.* A few of the notable FINRA Sanctions for its Supervisory Failures are below:

SEC Sanctioned Commonwealth Financial Network Over $1.6 Million For Mutual Fund Sales Practice Abuse

The SEC, investigated and sanctioned Commonwealth Financial Network for breaches of fiduciary duty and inadequate disclosures by the registered investment adviser in connection with its mutual fund share class selection practices and the fees it and its associated persons received pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”).  During the relevant period, Commonwealth Financial Network financial advisors purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds for which the clients were eligible. Commonwealth Financial Network and its associated persons received 12b-1 fees in connection with these investments. Respondent failed to disclose in its Form ADV or otherwise the conflicts of interest related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay such fees. During the Relevant Period, Respondent and its associated persons received 12b-1 fees for advising clients to invest in or hold such mutual fund share classes.

The SEC ordered Commonwealth Financial Network to cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 207 of the Advisers Act; censured it for the misconduct; and ordered Commonwealth Financial Network to pay disgorgement and prejudgment interest to affected investors, totaling $1,637,303.45.

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FINRA Sanctioned Commonwealth Financial Network For Cheating Charities Out Of Mutual Fund Sales Discounts

FINRA investigated and found that Commonwealth Financial Network disadvantaged certain retirement plan and charitable organization customers who were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge. These 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. During the relevant period, FINRA also found Commonwealth Financial Network failed to establish and maintain a supervisory system, and failed to establish, maintain, and enforce written supervisory procedures, reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. As a result, FINRA concluded that Commonwealth Financial Network violated NASD Conduct Rule 3010, FINRA Rule 3110, and FINRA Rule 2010 and censured the firm and ordered it to make remediation to the Customers who were cheated out of the sales discounts.

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FINRA Censured And Fined Commonwealth Financial Network For UIT Sales Practice Abuse

FINRA investigated and found that during the relevant period Commonwealth Financial Network failed to apply sales charge discounts to certain customers’ eligible purchases of unit investment trusts (“UITs”) in violation of FINRA Rule 2010. In addition, FINRA found that Commonwealth Financial Network 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.  As a result, FINRA censured and fined Commonwealth Financial Network $225,000 and further ordered it to make restitution to the affected customers in an amount over $357,521.

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FINRA Censured And Fined Commonwealth Financial Network For Not Supervising Stockbroker Emails

Commonwealth Financial Network registered representatives are independent contractors and many operate from branch offices under one or more “doing business as” (“DBA”) names.  FINRA investigated and found representatives use non- Commonwealth Financial Network e-mail “domains,” each of which generally represents a branch office and comprises several e-mail accounts associated with their DBAs. During the relevant period, FINRA found that Commonwealth Financial Network used a system that failed to comply with its regulatory obligations pertaining to archiving, preserving and supervising the business-related e-mails of its associated persons.  Specifically, it found that Commonwealth Financial Network’s supervisory system: (a) failed to subject about 12.6 million outgoing e-mails to its daily e-mail surveillance protocol, constituting a failure to surveil about 90% of the e-mails that Commonwealth Financial Network’s registered representatives sent through their DBA e-mail accounts; and (b) failed to surveil approximately 474,380 e-mails sent or received by some of its registered representatives.  FINRA found that Commonwealth Financial Network also failed to establish and maintain procedures to test its e-mail supervisory system and ensure timely notice of systemic failures to its legal and compliance departments. This conduct violated NASD Conduct Rules 3010(a) and 3010(d)(2) and FINRA Rule 2010.  As a result, FINRA censured Commonwealth Financial Network and fined it $250,000 for its rule violations.

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FINRA Censured And Fined Commonwealth Financial Network For Not Reporting Customer Complaints, Terminations, Regulatory Actions And Criminal Disclosures

FINRA investigated and found that Commonwealth Financial Network failed to file in a timely manner certain amendments to Form U4 (Question 14 – Disclosure Questions) and Form U5 (Question 7 – Disclosure Questions) and that it failed to file in a timely manner certain Forms U5 for terminated registered representatives. Those reports were required by NASD By-Laws, Article V, Sections 2(c), 3(a) and 3(b) (the “Article V reporting obligations”). The late disclosure items pertained to certain individuals’ reportable customer complaints, terminations, regulatory actions, and criminal disclosures.  It found the brokerage firms failure to comply with the Article V Reporting Obligations may have hampered the investing public’s ability to assess the background of certain brokers through NASD’s public disclosure program, rendered certain information unavailable to member firms making hiring determinations, may have reduced the ability of state securities regulators to review applications by brokers to transfer firms, and may have hindered NASD from promptly investigating certain disclosure items. Further, it found that Commonwealth Financial Network’s supervisory system and procedures were not reasonably designed to achieve compliance with its Article V and NASD Conduct Rule 3070 reporting obligations.  As a result, FINRA censured and fined Commonwealth Financial Network $100,000 for its rule violations. 

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FINRA Fines Commonwealth Financial Network Over $1.4 Million For Undisclosed Sales Compensation Conflict Of Interest

FINRA investigated Commonwealth Financial Network and discovered it maintained a revenue sharing (or “shelf space”) program pursuant to which, in return for a fee, participating mutual fund complexes received preferential treatment from Commonwealth Financial Network in the marketing of funds. The benefits provided to the mutual fund complexes included enhanced visibility with Commonwealth Financial Network’s sales force; ticket charge reimbursement; participation in firm conferences; placement of materials and links, and identification as a Strategic Partner, on the firm’s intranet website; and inclusion of information about the funds in the firm’s monthly newsletter. The program included six non-proprietary mutual fund complexes during the period in question. Four fund complexes paid some or all of their fees for participating in the program by directing approximately $5.41 million in mutual fund portfolio brokerage commissions to Commonwealth Financial Network through two clearing brokers. Those payments were a conflict of interest and violated NASD Conduct Rules 2830(k) and 2110. As a result, FINRA censured and fined Commonwealth Financial Network $1.4 million.

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The SEC Censured And Fined Commonwealth Financial Network For Not Safeguarding Customer Account Information

The SEC investigated Commonwealth Financial Network and discovered that  an unauthorized party obtained the login credentials of a Commonwealth Financial Network registered representative through the use of a computer virus and was thereby able to access Commonwealth Financial Network’s intranet and the representative’s customer accounts (which included certain customer account information) and entered unauthorized purchase orders in those accounts before the activity was detected and the intruders were blocked from further trading.

Rule 30(a) of Regulation S-P (17 C.F.R. § 248.30(a)) (the “Safeguards Rule”), which requires broker-dealers and Commission-registered investment advisers to adopt written policies and procedures reasonably designed to protect customer information. FINRA discovered that Commonwealth Financial Network recommended – but did not require – that its registered representatives maintain antivirus software on their computers, which the registered representatives used to access customer account information on the firm’s intranet and trading platform. As a result, Commonwealth Financial Network’s customer information was left vulnerable to unauthorized access. FINRA also found the brokerage did not have procedures in place to adequately review its registered representatives’ computer security measures. In particular, its internal auditors did not audit branch office computers to determine whether antivirus software was installed nor did the firm have procedures in place to follow up on potential computer security issues uncovered during branch audits or when registered representatives contacted Commonwealth Financial Network’s information technology help desk for computer-related assistance.

For its supervisory lapses and violation of the Safeguards Rule, the SEC censured and fined Commonwealth Financial Network $100,000.

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SEC Sanctioned Commonwealth Financial Network or Supervisory Lapses

SEC investigated Commonwealth Financial Network and discovered it failed to reasonably to supervise Bradford C. Bleidt (“Bleidt”) with a view to preventing and detecting his violations of the federal securities laws during the ten-year period that Bleidt was a Commonwealth Financial Network registered representative.  During the relevant period, Bleidt defrauded approximately 34 of Respondent’s customers by lying about purchases and sales of securities, misappropriating funds, and sending them falsified statements relating to their investment advisory accounts with Bleidt’s independent advisory firm. As a result of its supervisory lapses, the SEC censured and fined Commonwealth Financial Network $250,000.

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Why Does Commonwealth Financial Network 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 one 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 Commonwealth Financial Network 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. Commonwealth Financial Network 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 Commonwealth without representation with an attorney 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 Commonwealth Financial Network Today!

The securities attorneys 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 Commonwealth Financial Network 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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