On Aug. 4, the Financial Industry Regulatory Authority sent a so-called Wells Notice to Lafayette financial adviser G. Andrew Ahrens of Ahrens Investment Partners. The notice is the regulatory agency’s way of informing an individual or a firm that it intends to recommend disciplinary action.
While it is the most dreaded word in the industry, a Wells Notice is rarely a surprise, local financial advisers tell ABiz, because the target is aware of the inquiry or investigation that leads up to the notice and has been having discussions with the FINRA staff. The notice references the violation the staff believes has occurred.
A Wells Notice, however, does not mean it’s game over for a financial adviser, as the ongoing process allows him to make his case for why the disciplinary proceeding or enforcement arbitration should not be brought forward. And FIN- RA must prove in a hearing that Ahrens engaged in the violations it alleges.
It’s unknown just how long the exercise will take, but it will not be pleasant.
Ahrens says he did nothing wrong and intends to fight the allegations. “I could have simply accepted a small fine to resolve the issue, but my business has been built on a foundation of integrity, and I am determined to verify that, even though it will cost thousands in attorney fees. The cost of my defense will far surpass any settlement I could reach with FINRA,” he tells ABiz in a written response.
Very little information about what prompted the investigation is revealed in Ahrens’ broker report on FINRA’s website, which notes that the investigation was started by FINRA to determine whether consolidated reports he provided to his clients “contained information that was incorrect.” Though it’s hard to determine specifically what FINRA is looking into, it appears that there were discrepancies between the custodian reports, those prepared by the brokerage firm, and the consolidated reports prepared by Ahrens himself.
“I could have simply accepted a small fine to resolve the issue, but my business has been built on a foundation of integrity, and I am determined to verify that, even though it will cost thousands in attorney fees."
— Andrew Ahrens
“I don’t know the motivations, but I am generally aware that FINRA has been taking a closer look at consolidated reporting in recent years,” Ahrens says, noting that his attorneys have officially asked for a dismissal of the matter.
“As background, the consolidated reports at issue were prepared specifically at the request of a small handful of clients and contained information prepared only for them,” Ahrens says. “For a few clients who requested it, Ahrens provided limited additional information meant to complement not replace the required reporting from LPL [his former broker-dealer]. Many of today’s investors want more not less information they can use to evaluate their portfolios. Every single client that requested and received a consolidated report has provided an attestation saying the reports were prepared at their request and for their convenience and were not utilized for the purpose of making investment decisions. The reports were prepared long after the investments listed on the reports were purchased, and our clients report the information had no positive or negative impact on their portfolio.”
He continues: “Investors today have high expectations, demands, and they expect quality consolidated reporting from asset managers. This is one of the primary reasons we have chosen to change custodians for our clients’ accounts [from LPL]. Fidelity Investments clearly is the right firm at the right time — one that will provide exceptional financial services and products to our clients.”
The FINRA online report confirms that Ahrens and LPL Financial, which calls itself the nation’s largest independent broker-dealer and a leading independent consultant to retirement plans and had been affiliated with Ahrens since 1998, cut ties in August, the same month the Wells Notice was issued (Ahrens also once worked for LPL). A different brokerage firm, California-based Mutual Securities, ended its affiliation with Ahrens on Aug. 19, specifically citing the Wells Notice as the reason. Ahrens, however, insists HE made the decision Mutual Securities would not be a good fit.
Ahrens says the switch to Fidelity is underway and should be seamless for his clients.
What’s most eye-catching in the online FINRA report on Ahrens, however, is the number of customer disputes, one of which was settled in 2011 for $875,000 — Ahrens himself paid $30,000, and the remainder was paid by insurance.
FINRA is the largest self-regulatory organization in the securities industry in the U.S. and is the front line in regulating broker-dealers. While it is an independent organization that is not part of the government, it is overseen by the Securities and Exchange Commission. FINRA says the purpose of its disciplinary process is to “protect the investing public, support and improve the overall business standards in the securities industry, and decrease the likelihood of recurrence of misconduct by the disciplined respondent.” Depending on the facts and circumstances, potential sanctions could range from fines to suspensions, restitution or even expelling a firm or barring an individual from the industry, according to FINRA spokeswoman Michelle Ong.
Before press time for this story, Ong was unable to provide figures on the average number of Wells Notices FINRA sends out each year and how many of them ultimately lead to sanctions.
What’s most eye-catching in the online FINRA report on Ahrens, however, is the number of customer disputes, one of which was settled in 2011 for $875,000 — Ahrens himself paid $30,000, and the remainder was paid by insurance. The FINRA arbitration statement of claims alleges “unsuitable investments in [Real Estate Investment Trusts], breach of contract, breach of fiduciary duty, negligence, misrepresentation, failure to supervise and violation of certain state and federal statues with respect to the claimant’s REIT investments, and in particular with respect to the alleged illiquidity thereof, all allegedly resulting in unspecified damages to the claimant.”
Another dispute was settled last year for $97,500 after a customer complained to FINRA that the limited partnerships and REIT investments were unsuitable for him or her and that the risks were not explained. Ahrens was not asked to personally contribute to this settlement.
“The complaints you are referencing were complaints against LPL. To prove that point, please note that LPL’s insurance company made the determination to settle two customer complaints,” Ahrens says. “My firm’s participation in one of the referenced settlements amounted to paying the deductible for the company’s insurance.”