The White Law Group reviews the regulatory history of Kestra Investment Services, LLC.
Kestra Investment Services LLC (CRD# 42046, Austin, Texas) is a national financial advisory firm headquartered in Austin, Texas. The firm reportedly had $790 million in revenue in 2022. According to its FINRA Broker Report, the firm reportedly has 16 disclosure events on its broker record including 14 regulatory events, and 2 arbitrations.
FINRA and the SEC may impose regulatory actions against a broker-dealer such as censures, fines, suspensions and restitution, among others. Regulatory actions can have serious consequences for a broker-dealer’s profile and reputation. FINRA BrokerCheck may also report arbitration awards related to customer disputes. These awards typically indicate the outcome of arbitration proceedings, which could result in financial compensation for aggrieved customers. The presence of multiple arbitration awards against a broker or firm can indicate a history of unresolved customer complaints or poor conduct.
The following is a brief breakdown of publicly available information regarding Kestra Investment Services and its securities sales practices and FINRA regulatory history. FINRA is the self-regulator that oversees brokers and brokerage firms.
Kestra Investment Services – Broker Misconduct and Customer Complaints
There have been several cases of registered representatives employed by Kestra Investment Services who were allegedly involved in broker misconduct and fraudulent activities. Broker dealers are required to supervise their employees. If they fail to do so they may be held liable through a FINRA arbitration claim.
July 2020: Six seniors reportedly filed a lawsuit in Houston County, Alabama alleging their Kestra financial advisor, James Blake Daughtry stole more than $1 million from their retirement accounts by purportedly copying and pasting their signatures on documents, according to AL news.
The lawsuit claims that Daughtry and two alleged co-conspirators purportedly stole the retirees’ entire life savings by transferring the retirement accounts to “sham entities” allegedly controlled by the defendants.
The lawsuit further alleges that Kestra Investment Services, a broker-dealer whom Daughtry was registered with, and Equity Trust and ETC were negligent for not preventing the fraud.
According to his BrokerCheck profile, Daughtry was reportedly registered with Kestra Investment Services from 2015 – 2020 when he was discharged after FINRA reportedly barred him for allegations of “potentially fraudulent and unauthorized transactions in customers’ accounts.”
July 2019: Washington securities regulators reportedly sanctioned former Kestra Investment Services advisor Tom Puentes for failure to report two customer complaints while on alleged heightened supervison. In the Consent Order the parties reportedly agreed that Puentes would pay a fine of $12,500 and purportedly be subject to a heightened supervision plan for at least one year.
Puentes was reportedly affiliated with Kestra Investment Services in Woodland Hills, CA from 2014 through 2018 when he was reportedly permitted to resign after allegations. There are 32 customer complaints and 3 employment separations indicated by Puentes’ broker profile during his 31 year career in the securities industry. Allegations include “unsuitability with respect to Puerto Rico Municipal Bond,” and unauthorized trades, among others.
February 2019: FINRA barred Kestra advisor John Spach from associating with any FINRA member at any time after Kestra reportedly dismissed him for “potential violation of various firm policies while attempting to settle a customer complaint with a client of his registered investment advisor.”
Kestra Investment Services – Regulatory History
April 2020: FINRA Censures and Fines Kestra Investment Services $125,000
According to FINRA, from approximately November 2017 until February 2019, Kestra caused certain recruited registered representatives to take nonpublic personal customer information from the firms where the representatives were then registered and to disclose it to a third-party vendor that assisted the representatives with their transition to Kestra, without the other broker-dealers’ or the customers’ knowledge or consent, causing those broker-dealers to violate the SEC’s Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Information.
The firm agreed to the sanctions and paid a fine of $125,000.
April 2019: Kestra reportedly failed to reasonably supervise one agent in connection with the sales of structured products to his clients in Pennsylvania. Pennsylvania Department of Banking and Securities fined the firm $30,000 for failure to supervise.
February 2019: FINRA Sanctions Kestra Financial for Mutual Fund Overcharges
FINRA censured and fined Kestra Financial $225,000 and the firm had to pay $1.9 million in restitution for allegedly overcharging more than 3,200 mutual fund investors over a nine-year period.
According to a Letter of Acceptance, Waiver & Consent, the independent broker-dealer failed to apply fee waivers on certain mutual funds that were sold to customers between July 1, 2009, and Feb. 22, 2018.
FINRA said “Kestra failed to reasonably supervise its registered representatives’ recommendation and sale to its customers of $52 million in L-share class variable annuities.”
November 2016: FINRA Sanctions Kestra for the sales and supervision of Variable Annuity products
According to FINRA, between October 1, 2013, and June 30,2014 Kestra failed to reasonably supervise its registered representatives’ recommendation of multi-share class variable annuities to its customers. Kestra also reportedly failed to provide training to its registered representatives and principals on the sale and supervision of multi-share class VAs. Further, Kestra also failed to establish, maintain, and enforce an adequate supervisory system.
The firm was censured and fined $475,000.
Failure to Supervise
FINRA’s supervision rule (FINRA Rule 3110) focuses on the regulatory oversight and monitoring conducted by the Financial Industry Regulatory Authority (FINRA) over its member firms and registered representatives in the securities industry. The primary objective of this supervision is to protect investors and uphold the integrity of the securities markets.
Supervision extends to monitoring and reviewing the activities of registered representatives, including their interactions with clients. FINRA examines the adequacy of disclosure, sales materials, and the handling of customer complaints. It also oversees the supervision of registered representatives’ outside business activities and private securities transactions.
FINRA’s supervision rule aims to promote investor protection and to ensure that member firms and registered representatives comply with regulatory requirements and act in the best interests of their clients.
When brokers violate securities laws, such as making unsuitable investments, the brokerage firm they are working with may be liable for investment losses through FINRA Arbitration.
If your broker has defrauded you, you may be able to file a FINRA claim against your brokerage firm. FINRA arbitration can be a complex and technical process, and having an experienced attorney who is knowledgeable about securities law can greatly increase your chances of success.
If you have concerns regarding investments you purchased through Kestra Investment Services and would like to speak with a securities attorney, please call The White Law Group at 888-637-5510.
For more information on The White Law Group, visit www.whitesecuritieslaw.com.
Tags: broker-dealer review, failure to supervise, finra sanctions, James B. Daughtry, Kestra Financial, Kestra Investment Services Last modified: May 18, 2023