NU Online News Service, Jan. 14, 2004, 5:55 p.m. EST – The NASD, Washington, is accusing a broker-dealer subsidiary of Waddell & Reed Financial Inc., Overland Park, Kan., of recommending that clients exchange 6,700 variable annuities in 2001 and 2002 without having a reasonable basis for concluding that the transactions were suitable.[@@]
About 1,400 of the clients seemed to be likely to lose money on the exchanges, the NASD says in a complaint.
The NASD also is bringing charges against two former Waddell & Reed executives.
“Waddell & Reed strenuously denies the NASD’s allegations and plans to vigorously defend its sales practices and compliance procedures,” the company says in a statement about the NASD complaint.
The NASD’s complaint is factually and legally inaccurate in many respects, and the exchanges from older policies into new, modern policies provided “tremendous value” for Waddell & Reed’s clients and were suitable for clients’ individual financial needs, Waddell & Reed says.
“A case-by-case analysis was conducted at various levels of the company to ensure that each exchange was in the best interests of the client, and the company’s financial advisors were repeatedly urged to recommend exchanges only if they were in the best interests of the clients,” Waddell & Reed says. “In addition, tools were provided to allow the financial advisors to compare the old products to the new products to allow them to determine if exchanges would be appropriate for clients.”
The exchanges described in the NASD complaint were linked to a bitter, complicated dispute between Waddell & Reed and a subsidiary of Torchmark Corp., Birmingham, Ala.
Waddell & Reed says the NASD is basing its allegations about the exchanges on the retroactive application of a hypothetical, academic, predictive model instead of on an assessment of each client’s individual financial situation.
The NASD’s predictive model fails to reflect the benefits and features of the new policies purchased by the clients, the company adds.
Waddell & Reed Chairman Keith Tucker notes in the company’s response to the NASD complaint that the former executives named in the complaint had long, distinguished careers.
Waddell & Reed has 25 days to submit an answer to the NASD complaint and request a hearing, Waddell & Reed says.
“At the hearing, Waddell & Reed will be afforded an opportunity to present evidence supporting the propriety of its actions to a hearing panel of industry representatives,” the company says.