FINRA (The Financial Industry Regulatory Authority) recently announced that is has fined eight brokerage firms for failing to supervise sales of variable annuities. The announcement, titled "FINRA Fines Eight Firms a Total of $6.2 Million for Supervisory Failures Related to Variable Annuity L-Shares" is available for review here. The fines relate to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.
FINRA imposed sanctions against the following firms:
VOYA Financial Advisors Inc., of Des Moines, IA, was fined $2.75 million.
Cetera Advisor Networks LLC of El Segundo, CA, was fined $750,000.
Cetera Financial Specialists LLC of Schaumburg, IL, was fined $350,000.
First Allied Securities, Inc. of San Diego, CA, was fined $950,000.
Summit Brokerage Services, Inc. of Boca Raton, FL, was fined $500,000.
VSR Financial Services, Inc. of Overland Park, KS, was fined $400,000.
Kestra Investment Services, LLC of Austin, TX, was fined $475,000.
FTB Advisors, Inc. of Memphis, TN, was fined $250,000.
FINRA also ordered firms to pay the following to investors:
Voya was ordered to pay at least $1.8 million to customers in this category.
Cetera Advisors Networks, First Allied, Summit Brokerage Services and VSR were collectively ordered to pay customers at least $4.5 million.
The L-share variable annuities at issue are designed for short term investors willing to pay higher fees in exchange for shorter surrender periods (i.e., the length of time after purchase within which penalties or charges must be paid if the annuity is terminated or cancelled.). However, in addition to paying higher fees for the short term flexibility of L-share variable annuities, customers also paid for expensive guaranteed income and withdrawal riders that only have value over the long term - a product combination that is inconsistent with the nature of L-share variable annuities. The L-share variable annuities also often pay greater compensation to the firms and registered representatives than more traditional share classes. According to FINRA, the firms allegedly lacked an adequate system to supervise variable annuities with multiple share classes, and failed to provide its registered representatives and principals with reasonable guidance regarding the narrow class of customers for whom the costs and features of L-share variable annuities were suitable.
Over the past 15 years, Joel Ewusiak has represented many customers who have been sold variable annuities. If you have purchased a variable annuity from any of the foregoing brokerage firms and have concerns about the suitability of your purchase, please contact Joel at email@example.com or 727.286.3559.