According to FINRA, Triad Advisors LLC was censured, fined $195,000, and ordered to pay $510,256.57 in restitution to customers for failing to reasonably supervise representatives' recommendations of alternative mutual funds.

The firm was found in violation of its supervisory obligations regarding complex investment products. Triad did not have a reasonably designed supervisory system for recommendations of alternative mutual funds. The firm had no system or procedures to determine whether a new mutual fund constituted a complex product or was an alternative mutual fund before representatives sold it, such that heightened due diligence might be appropriate. Instead, when reviewing and approving new funds, the firm subjected them to the same standards as traditional mutual funds, which did not evaluate the potential risks and rewards associated with the alternative strategies these funds employed. The firm did not conduct any due diligence of mutual funds added to its platform by its clearing firm.

Additionally, Triad did not provide reasonable guidance or training to representatives regarding the risks and features of alternative mutual funds and did not have written supervisory procedures advising principals how to supervise recommendations of these products. The firm utilized an electronic trade review system to assist with supervision, but failed to consider whether the system's rules for traditional mutual funds were reasonable for alternative mutual funds with more complex strategies. The firm did not tailor the system's parameters to address particular risks and characteristics of alternative mutual funds. As a result, alternative mutual fund transactions were generally not identified for additional suitability review.

Furthermore, Triad failed to obtain and record private placement customers' account information in the firm's books and records. The firm's procedures required OSJ branch offices to submit new account forms and documentation for alternative investments to the home office, but the firm allowed one OSJ branch to offer alternative mutual fund private offerings without enforcing these procedures. Alternative mutual funds employ non-traditional strategies such as short-selling, leverage, and derivatives, making them more complex and potentially riskier than traditional mutual funds. Investors should ensure they understand these products' unique risks before investing.