Eight Firms Fined For Unsuitable Variable Annuity Products

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Eight Firms Fined For Unsuitable Variable Annuity Products

FINRA fined eight firms a sum of $6.2 million and ordered five of them to pay an additional $6.3 million in restitution for failures in supervision that led to the sales of unsuitable variable annuity products. As part of the settlement, FINRA imposed sanctions against Voya Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services and FTB Advisors Inc., according to its action notice.

Voya was ordered to pay its customers at least $1.8 million, while Cetera Financial Group’s subsidiaries, Cetera Advisors, First Allied, Summit Brokerage and VSR will collectively pay customers at least $4.5 million.

The unsuitable variable annuity products at issue were L-share annuities that are considered “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” The regulator said that L-share annuities could “pay greater compensation to the firms and registered representatives than more traditional share classes.”

The L-share annuities were often found hidden in a complex product that combines expensive guaranteed income and withdrawal riders that can only provide benefits over longer holding periods. FINRA stated such complex investment products are only suitable for a narrow class of customers, and that the firms have not provided its advisers with “reasonable guidance” on discerning this class of customers.

According to FINRA, firms should have picked up on the “red flags” that this product could be potentially unsuitable for the customer.

“When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met,” said Brad Bennett, FINRA executive vice president and chief of enforcement.

The FINRA action comes on the heels of an earlier action brought against Metlife Securities Inc., which was fined $20 million for compliance failures in switching clients from one variable annuity to another, and ordered to pay $5 million to customers.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

By |November 3rd, 2016|Legal Matters|

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