In May 2011, a FINRA arbitration panel ordered St. Petersburg, Florida-based brokerage firm Raymond James to pay more than $1.5 million to an elderly Texas couple. This case involves stockbroker and brokerage firm negligence in the handling of a customer account. The FINRA arbitrators found that a Raymond James broker improperly convinced the couple to invest approximately $3.5 million of their savings into unsuitable investments, specifically variable life insurance and variable annuities. The couple's retirement savings had been invested in more appropriate bond funds.
The arbitrators found that Raymond James failed to properly supervise its broker, whose misconduct included exchanging one annuity in the couple's portfolio for a different one, resulting in substantial penalties. Such a transaction, called switching, generally makes no financial sense for the investor, and only serves to put commissions and fees in the pockets of the broker and brokerage firm. Switching annuities in this manner is similar to churning a stock account.
