CUSO Financial Services has fired back at the Utah Division of Securities, vigorously refuting the regulator’s allegations that it used deceptive advertising to mislead customers into thinking that the investment services it provided through America First Credit Union were part of the credit union.
In a 41-page response to the regulator’s concerns, CUSO countered accusations that it failed to distinguish its services, which are not insured by the National Credit Union Administration, from the credit union’s products, which are. The regulator spelled out its grievances in a petition it filed with Utah’s Securities Commission to have the firm fined $500,000 for the alleged marketing infractions.
The petition, which was lodged as part of a crackdown on broker-dealers doing business with credit unions in Utah, faults the firm for everything from the branding of its services, which it said was too closely linked to the name of the credit union, to its business cards.
In its response, CUSO denied many of the allegations, saying it “provided numerous and fulsome disclosures of its role as non-deposit investment service provider on all marketing materials, including but not limited to signage, posters, business cards, brochures, websites and other advertising materials.”
CUSO swatted away the regulator’s objection to the use of the marketing name America First Financial Solutions, which the regulator said was misleading. CUSO said that the name was a “department identifier” and that it was always used in conjunction with the disclosure that it was “available through CUSO Financial Services.”
The firm also responded to the regulator’s criticism that the credit union’s logo in marketing and other materials appeared more prominently than that of the firm’s. “The presence of [CUSO’s] name in direct proximity of the department identifier within the signage in every instance properly distinguishes that [CUSO] is the provider of financial services, notwithstanding any purported discrepancy in the size of the respective logos,” CUSO said.
CUSO, however, did relent somewhat on criticism that its advisors answered the phone as America First Financial Solutions rather than CUSO Financial Services. CUSO representatives are required to identify CUSO when answering the phone and in all outgoing voicemail greetings and messages, it noted in its response. “To the extent that a [CUSO] representative failed to adhere to [CUSO’s] policies in this regard, CUSO intends to review and correct any non-compliant activity in this regard,” it said.
The Utah regulator’s accusations were not limited to CUSO’s alleged misleading marketing practices. The regulator also charged the firm with engaging in dishonest and unethical conduct by splitting commissions, profits and other compensation with the credit union, which is not licensed as a broker-dealer or investment advisor.
CUSO refuted these allegations too, saying its compensation-sharing arrangements with the credit union as provided for in their networking agreement was compliant with all applicable rules, regulations and laws.
The firm noted in its defense that it was contacted by the regulator just three months after initiating its relationship with the credit union, which had previously been with rival broker-dealer firm CUNA, and that the regulator never reported any concerns until three years later.
CUSO was not the only broker-dealer firm in the regulator’s crosshairs. The Utah regulator also filed separate petitions to censure and fine both Cetera Advisor Networks and LPL Financial for similar alleged infractions. It is looking to fine Cetera $1 million for purported marketing and other violations in its broker-dealer relationships with Jordan Credit Union, Granite Credit Union, Deseret First Credit Union and Utah Community Credit Union. It is seeking a $750,000 fine for LPL for alleged advertising and other lapses in its relationship with Cyprus Credit Union and Mountain America Credit Union.
Neither Cetera nor LPL have yet filed responses to the regulator’s petitions.