Selling an unsuitable in-house investment product to a retiree has cost San Diego-based Dunham & Associates $2.7 million in FINRA fines.
FINRA has ruled that one of Dunham's advisors in Maryland improperly put a retired commercial pilot's retirement savings into two non-traded mortgage funds that the company had developed and still operates.
When the credit crunch hit, Dunham froze redemptions from these funds, cutting the retiree off from his former source of retirement income.
His lawyer has not described the quality of the funds -- in an admittedly hard-hit asset class -- as the problem, but simply accused the Dunham advisor of inappropriately investing an income-dependent client's entire nest egg into them.
That is, it's not the investment choices, but the extreme concentration that worked against the retiree, the advisor, and ultimately the company.
From what I know, Dunham has a relatively wide proprietary shelf. The advisor couldn't have known that the mortgage crash would make at least some of those funds illiquid for awhile, but he must've had plenty of other funds to work with -- if he wanted to build a diversified portfolio at all.
This is a data point against relying too heavily on proprietary product, and a marketing point that advisors with an "open architecture" can use to woo new clients.