Broker Suspended Over $170,000 in Avoidable Mutual Fund Sales Charges

Harvey Alan Brode agreed to a two-month suspension and a $5,000 fine under a Letter of Acceptance, Waiver, and Consent (AWC) with FINRA. According to FINRA, between June 30, 2020, and May 10, 2024, Brode recommended that retail customers sell Class A mutual funds and buy new Class A funds with a new front-end sales charge. When he did, he failed to consider whether the customers could meet the same goals by exchanging into a new fund within the same fund family at no sales charge. FINRA found that Brode willfully violated the Care Obligation of Regulation Best Interest (Reg BI) and violated FINRA Rule 2010. Brode consented to FINRA's findings without admitting or denying them.

Brode first registered with FINRA in 1969. From June 2014 to June 14, 2024, he was registered as a General Securities Representative with Securities America, Inc., until a mass transfer moved his registration to another FINRA member firm. On July 31, 2026, he registered with a different FINRA member firm, where he remained registered at the time of the AWC. The case originated from a FINRA examination of Securities America.

Reg BI requires brokers to act in the best interest of a retail customer when recommending a securities transaction or investment strategy. Under Reg BI's Care Obligation, a broker must use reasonable diligence, care, and skill to understand the potential risks, rewards, and costs of a recommendation. For example, a broker would violate these rules by recommending that a customer sell one fund and buy a similar fund from a different company. That switch triggers a new sales charge, even though a free exchange within the same fund family would meet the customer's goal. A broker would also violate these rules by recommending a high-cost product without comparing it to a lower-cost alternative that serves the same purpose.

According to FINRA, Class A mutual funds typically charge an upfront sales charge, most of which goes to the broker-dealer and, in part, to the broker as a commission. Fund companies usually waive that charge when a customer exchanges into another fund within the same family, and in that case the broker typically earns no commission. Switching to a fund from a different company, on the other hand, typically triggers a new sales charge. FINRA stated that Brode recommended that 63 customers, some of whom were seniors with limited incomes, switch mutual fund positions on 108 occasions, with a total principal value of $5.9 million. The customers allegedly paid about $170,000 in front-end sales charges, and Brode allegedly did not consider whether exchanges within the same fund family could meet the same objectives without new charges.

Lufrano Law, LLC is a national investment litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. Please contact us at (800) 627-2179 for more information if you have been the victim of investment negligence or fraud.

The content on this site reflects personal opinions and does not constitute statements of fact. No findings have been made against the firms or individuals mentioned. This blog is intended solely for educational purposes, drawing on publicly available information to provide general insights and a basic understanding of the law. It is not a substitute for legal advice.