Navigating the Choppy Waters of Finance with Emily Carter

My Insight on the Charles Kulch and Next Financial Case

I’m Emily Carter, your guide through the complex and sometimes turbulent world of finance. Today, let’s explore a significant event that has created ripples in our industry: Charles C. Kulch and his firm, Next Financial Group Inc., have been slapped with penalties totaling more than $1 million.

These penalties are a result of alleged overbilling clients under the guise of ‘consulting service agreements.’ Breaking it down, we see a fine of $325,000, $100,000 for the cost of the investigation, and client restitution of $633,000.

Charles Kulch, aligning with the concept of ‘innocent until proven guilty’, settled with New Hampshire without confirming or denying the accusations. Nevertheless, regulators have shown that they take their role seriously—FINRA doesn’t turn a blind eye to misconduct.

Massachusetts Turns Up the Heat

The plot thickens with William Galvin, the Secretary of the Commonwealth of Massachusetts, pointing the finger at Kulch for inappropriate sales of non-traded REITs and variable annuities, which are known for being difficult to sell and carrying high commissions. Over five years, it’s reported that Kulch earned nearly $1 million in commissions from these sales.

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Massachusetts has been keeping a watchful eye on these types of sales for some time, leading to consequences for firms accused of lax oversight on these often problematic investment products.

Next Financial’s Troubles Bubble to the Surface

In January 2020, Next Financial found itself in hot water with a $150,000 fine related to sales practices, including making unsuitable sales of non-traded REITs. Kulch was allegedly leading these violations, resulting in sales to over 100 Massachusetts investors, with nearly 50 transactions potentially breaching Next Financial Group’s own policies.

These issues didn’t stop at the Massachusetts border, as Next Financial Group also faced a $235,000 fine in New Hampshire for alleged supervisory failures related to certain alternative investments.

The Hidden Dangers of Non-Traded REITs

Non-traded REITs aren’t your run-of-the-mill investments. Unlike more common options like stocks or mutual funds, these are complex and often suited for more experienced investors.

Their allure for brokers often comes from high sales commissions, but this can lead to recommendations that aren’t in the best interest of the client. These types of investments are also often illiquid, meaning selling them can be tough and lead to substantial financial hits if and when a buyer is found.

Advice for Brokers: Details Matter

Due diligence is not just a buzzword in finance—it’s a fundamental responsibility for brokers. This means thoroughly evaluating investments and ensuring they fit a client’s financial goals, risk tolerance, and investment savvy. Ignoring these responsibilities can make a firm vulnerable to liability for client losses in a FINRA arbitration.

Speaking of responsibility, it’s essential to remember that “an ounce of prevention is worth a pound of cure,” as Benjamin Franklin wisely stated. This is incredibly pertinent in financial advice—preventing bad investments is better than trying to rectify them later.

A Cautionary Conclusion

If like the clients caught in the mix with Charles Kulch and Next Financial, you’ve faced financial troubles, it might be time to speak up. The finance landscape is constantly changing, and staying on top of it can be daunting. Make informed decisions, and don’t hesitate to hold financial professionals accountable.

You may already know this, but a troubling fact is that some financial advisors have been found to rack up questionable records yet continue practicing. For instance, a sobering financial fact is that about 7% of advisors have been disciplined for misconduct but are still out there.1 To check an advisor’s record, including disciplinary actions, you can look up their FINRA BrokerCheck.

Remember, navigating the financial seas requires vigilance, knowledge, and sometimes, the courage to seek justice. If my words have struck a chord and you need guidance or if you suspect wrongdoing by your financial advisor, let’s keep those who manage our hard-earned money accountable. Here’s a direct line to check your advisor’s FINRA record because in the realm of investments, transparency is non-negotiable.

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