A financial advisor on heightened supervision by his employer after a half dozen client complaints still managed to sell customers hundreds more products that hit them with extra fees, according to FINRA.
In a Sept. 27
Wealth managers like Centaurus
"Fee-based discretionary accounts are formally fiduciary accounts and must be afforded the highest possible level of loyalty, trust and oversight," Louis Straney, a fraud expert and founder of compliance consultant Arbitration Insight, said in an email. "Conflicts of interest must be avoided, or potential conflicts disclosed clearly and accurately. Doubling of fees is clearly a conflict of interest. The industry has had software designed to detect double dipping for decades."
Representatives for Ingram Advisory Services, a Winter Haven, Florida-based registered investment advisor that Ingram launched in 1999 and still does business as Ingram Financial Group, declined a request for comment on the case. Ingram voluntarily terminated his registration with the RIA in March 2021, about five months after resigning from Centaurus, according to FINRA. The RIA still uses Centaurus as its brokerage.
Representatives for Centaurus, which has about 600 registered representatives who collectively generated more than $187 million in revenue in 2021 as the No. 20 firm on
"The firm's general policy is not to comment on any pending regulatory matters," Centaurus executive vice president Jerry Duhovic said in an email. "Notwithstanding, the firm vehemently denies the allegations and looks forward to presenting its case and bringing this matter to conclusion."
The case and Ingram's record over his career leave Centaurus with an uphill climb to defeat the regulator's case. In eight different settlements paid by Ingram's prior brokerage firm — a shuttered Cetera Financial Group-owned company called Investors Capital that it
"I spent significant time conducting due diligence on the client, her needs and the ultimate investments," Ingram said in response to an August 2016 case settled for $115,000 the following year. "All investments were both suitable and thoroughly explained to the client."
Despite his denial of those earlier allegations, Centaurus placed Ingram under heightened supervision about a year and half after he joined the firm from Investors Capital in 2016, according to FINRA's complaint. The firm did so because he had drawn six suitability complaints from clients during the prior two years.
Regardless, the supposed scrutiny didn't lead to much stricter oversight, according to investigators. Ingram made 229 unit investment trust purchases on behalf of clients while on heightened supervision without any suitability reviews by his supervisor, FINRA said. The supervisor, who isn't identified by name in the complaint, was the chief compliance officer of Ingram's RIA and the branch manager responsible for carrying out the firm's heightened supervision plan for him.
In all, Ingram recommended and carried out 595 UIT transactions between September 2016 and September 2018 with extra sales charges amounting to $300,000 above the cheaper "fee-based" units available to Ingram and his clients, according to investigators. Nine clients paid a combined $54,600 in unnecessary commissions for their nontraded REIT and BDC investments, FINRA said. Neither Ingram's supervisor nor any regional compliance supervisor analyzed whether the cost of the products made them unsuitable, the complaint said.
"Ingram's recommendations to these customers were unsuitable because Ingram had no reasonable basis to recommend the higher cost UITs and alternative investments when he could have recommended the lower cost UITs and alternative investments to his customers," the document said. "In so doing, Ingram violated one of the industry's fundamental principles — a registered representative cannot seek to maximize his own compensation to the detriment of his customers."
The FINRA complaint also took Centaurus to task, saying that the firm "failed to conduct a reasonable supervisory review of Ingram's recommendations of UITs and alternative investments."
FINRA accused Ingram and Centaurus of three different violations of the rules, and the regulator plans to pursue disgorgement of "any and all ill-gotten gains" for restitution plus interest for the affected clients. The case could have lasting ramifications for other wealth managers, according to Straney.
"Enforcement findings of this nature are not commonplace and when applied serve as benchmarks for the industry," Straney said. "Multiple BrokerCheck disclosures and heightened supervision are red flags that must be carefully managed. The firm's response to these issues matters."
