As a former financial advisor and legal expert with over a decade of experience, I’ve seen my fair share of cases where advisors fail to act in their clients’ best interests. The recent SEC action against Laura Barnes, a Winterset, Iowa-based financial advisor with Moloney Securities, is a prime example of how unsuitable investment recommendations can harm investors.
According to the SEC’s administrative order, filed in September 2024, Ms. Barnes allegedly recommended investments in GWG L bonds to retail customers without exercising reasonable diligence into these products. GWG’s disclosures clearly warned that these bonds were highly risky, speculative, and only suitable for investors with substantial financial resources and no need for liquidity. The disclosures also cautioned that GWG would use some of the investments’ proceeds to repay existing investors and expressed substantial doubt about the company’s ability to continue as a going concern.
Despite these glaring red flags, Moloney Securities and its representatives, including Ms. Barnes, recommended GWG L bonds to investors without having a reasonable basis to believe the recommendations were in the customers’ best interest. This lack of due diligence and disregard for clients’ investment profiles is a serious breach of trust and fiduciary duty.
As a result of these findings, the SEC ordered Ms. Barnes to pay a fine of $12,500 and disgorgement of $12,744. While this may seem like a slap on the wrist, the reputational damage and loss of client trust can be far more devastating to a financial advisor’s career.
Background and Past Complaints
Laura Barnes has been in the securities industry for 19 years and has been registered as a broker with Moloney Securities since 2012. Prior to that, she was registered with Eagle One Investments in Winterset, Iowa from 2005 to 2012. Her credentials include passing the Series 7, SIE, and Series 66 exams, and she is licensed in Iowa.
A review of Ms. Barnes’ FINRA BrokerCheck report reveals no prior disclosures or complaints, which makes the recent SEC action all the more surprising and disappointing.
Understanding FINRA Rules and Suitability
FINRA Rule 2111, known as the “suitability rule,” requires financial advisors to have a reasonable basis to believe that a recommended investment or investment strategy is suitable for the customer, based on the customer’s investment profile. This profile includes factors such as age, financial situation, risk tolerance, and investment objectives.
By recommending GWG L bonds to retail customers without properly assessing their suitability, Ms. Barnes and Moloney Securities violated this fundamental rule, putting their clients’ financial well-being at risk.
Consequences and Lessons Learned
The consequences of unsuitable investment recommendations can be severe for both investors and advisors. Investors may suffer significant financial losses, while advisors face fines, suspensions, and permanent damage to their reputation and career.
As the famous investor Warren Buffett once said, “Risk comes from not knowing what you’re doing.” This case serves as a reminder that financial advisors must always prioritize their clients’ best interests, conduct thorough due diligence on investment products, and ensure that their recommendations align with each client’s unique investment profile.
It’s worth noting that, according to a study by the North American Securities Administrators Association, bad financial advisors are responsible for an estimated $10 billion in investor losses annually. By holding advisors accountable for their actions and promoting transparency, regulators and investors can work together to minimize these losses and maintain trust in the financial advisory industry.
