Eight independent broker-dealers have been ordered by the Financial Industry Regulatory Authority to pay a combined $8.7 million in fines and restitution for unsuitable annuity sales. The actions allege that all eight broker-dealers failing failed to properly supervise and educate brokers on sales of variable annuities.
In a first settlement, the firms, including National Planning Holdings (NPH) broker-dealers National Planning Corporation, Investment Centers of America, SII Investments and INVEST Financial Corporation, agreed to pay a total of $1.69 million in fines and $6 million in restitution.
In a second settlement, a combined $1 million fine was paid by Advisor Groups broker-dealers Royal Alliance Associates, FSC Securities Corporation, SagePoint Financial and Woodbury Financial Services.
Firms Failed to Have Proper Supervisory Systems in Place
According to FINRA, all of the firms failed to have proper supervisory systems and procedures in place to monitor the sales of variable annuities, something that the regulator found unreasonable given the substantial volume of variable annuities sales taking place.
L-share variable annuities have surrender periods of three to four years and fees that are between 35 and 50 basis points higher than the more commonly sold B-share annuities. Typically, L-share variable annuities are products that are appropriate for investors looking for a short-term product with a higher risk profile.
FINRA found that from 2013 through 2015 brokers at each firm improperly sold variable annuities to clients with long-term investment goals or to those who indicated they planned to hold the investments for at least five years.
According to FINRA, while some of the firms had incomplete instructions and procedures in place to guide brokers on L-share sales, supervisory procedures at some of the broker-dealers failed to address variable annuity share classes at all.
Firms Agree to Pay Fines for Failure to Supervise
FINRA says that despite the fact that variable annuity sales were a large part of the Advisor Group Firms’ business, they failed to implement a supervisory system and procedures reasonably designed to ensure suitability.
The Advisor Group firms agreed to pay a total of $1 million and provide certification that they have updated policies and procedures. With 2,100 brokers, Royal Alliance agreed to pay $350,000. Atlanta-based FSC agreed to pay $200,000. Sage Point agreed to pay $200,000 and Woodbury agreed to pay $250,000.
NPH Firms Collectively Pay $1.7M for Unsuitable Annuity Sales
NPH firms also paid hefty fines as the firms derived between 19% to 30% of their annual revenue from variable annuity sales. According to FINRA, Los Angeles-based NPC generated around 19% of its annual revenue from variable annuities sales and generated around $56 million from L-share sales between January 2013 and December 2014. The company received the largest single fine – $650,000.
INVEST agreed to pay $600,000, SII would pay $325,000, while ICA agreed to pay $115,000. SII and ICA also paid restitution to customers who did not get sales charge discounts on Unit Investment Trust sales, though they should have.
LPL Not Liable for NPH Fines
According to a statement released by LPL, the company is not liable for the fines. LPL finished absorbing around 1,800 NPH brokers earlier this year after acquiring NPH in late 2017.
Penalties Are Part of Actions Against Unsuitable Annuity Sales
FINRA has issued several regulatory actions against independent firms in recent years for unsuitable L-share sales. In November 2016 FINRA levied fines against eight different independent broker-dealers including Voya Financial Advisors, several Cetera Financial Group subsidiaries, Kestra Investment Services, and FTB Advisors for unsuitable annuity sales.
In November 2017, FINRA fined independent firms Next Financial Group $750,000 and Hornor, Townsend & Kent $275,000, respectively, over similar allegations. A FINRA arbitration panel recently ordered Woodbury to pay $1.1 million to a former San Diego Chargers lineman and his wife for allegedly failing to prevent sales of several unsuitable investments, including variable annuities.
Have You Lost Money as a result of Stockbroker Negligence?
If you lost money as a result of misconduct by your stockbroker or think you may be a victim of unsuitable annuity sales, contact an experienced investment fraud attorney today.
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If you are looking for an investment fraud attorney to review your rights and options, the investment fraud lawyers at Dimond Kaplan & Rothstein, P.A. represent individual and institutional investors who have lost money as a result of investment fraud or stockbroker misconduct.
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