The Securities and Exchange Commission commissioned the first registered broker/dealer Horizon Advisors. with one Violation of the best interest regulation regarding the firm's recommendations for a type of structured note. (Structured notes are hybrid securities that typically combine debt and equity instruments to achieve specific goals, such as growth, income, or risk management.)
Memphis, Tenn.-based First Horizon. agreed to pay a civil penalty of $325,000 to settle the SEC's charges.
The point is that, in 2021, through a merger with broker/dealer Iberia Financial Services, First Horizon migrated more than 5,000 client brokerage accounts to its system. But because of incompatibilities in the two systems, b/d “did not have the accurate client information necessary to review the structured note recommendations for compliance with First Horizon's Reg BI policies and procedures,” according to the SEC.
During this time, First Horizon's Reg BI policies required its primary review office to evaluate structured note recommendations to ensure transactions were compliant.
“First Horizon was aware several months prior to the integration that some client investment profile information would not be mapped correctly from the merged broker/dealer clearing firm to First Horizon's clearing firm due to different profile fields and that some other information would not be transferred at all. ” according to the SEC.
Additionally, advisors who joined First Horizon from Iberia “did not have access to First Horizon's exception reporting page to review structured note transactions flagged as non-compliant.”
The SEC's investigation also found that for three years after the implementation of Reg BI in July 2020, First Horizon “failed to maintain or implement certain Reg BI policies and procedures applicable to structured note recommendations made by the new and legacy First Horizon First Horizon Registered Representative.”
The SEC further found that in 2023, Horizon adopted structured note recommendations without all the documentation required by its Reg BI policies and procedures.
“To help reduce the potential for harm to retail customers, Reg BI requires broker/dealers to establish, maintain and implement written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole, ” Osman Nawaz, chief of the SEC Enforcement Division Complex. The Financial Instruments Unit said in a statement. “This action highlights that broker/dealers must ensure appropriate compliance around complex financial products and that it is not enough to simply have written policies; firms must also implement them.”
The SEC order finds that First Horizon violated the Compliance Obligation of Reg BI. Without admitting or denying the SEC's findings, First Horizon agreed to a cease and desist order, a censure and a fine.
According to its most recent Form ADV, First Horizon managed total discretionary assets of $8.5 billion as of December 2022. Total assets managed on a non-discretionary basis were $2.8 billion.
First Horizon Advisors Inc. is the successor to First Tennessee Advisory Services. FTAS was organized in 2007 as a wholly owned subsidiary of First Tennessee Bank National Association, now known as First Horizon Bank. In 2013, FTAS merged with and into its affiliated broker/dealer, First Tennessee Brokerage, and the combined entity was renamed FTB Advisors. In October 2019, FTB Advisors changed its name to First Horizon Advisors Inc.
Sponsors have tried to make structured notes more accessible to retail investors in recent years.
Earlier this year, Luma Financial, which specializes in this product, expanded the existing partnership with the private market investment platform Yieldstreet with the aim of expanding advisers' access to the alternative product.
based in Chicago Halo Investment runs a platform where advisors can monitor, analyze and invest in structured notes, market-linked CDs, buffered ETFs and annuities offered by financial institutions. The platform includes a multi-manager structured note, a separately managed account market that provides advisors with access to institutional asset managers specializing in defined-outcome portfolio strategies.
In 2022, Morningstar incorporated information BY Luma at the Counselor's workstation.