The Financial Industry Regulatory Authority says it has fined 5 bank broker-dealers a total of $1.65 million in connection with allegations of inadequate oversight of sales of variable annuities and other products.
Brokers at each of the firms operated out of branches of affiliated banks, selling VA contracts, mutual funds or unit investment trusts to bank customers, many of whom were elderly, FINRA, Washington, says.
Bank personnel referred the customers to the brokers for sales of variable annuities, mutual funds or UITs.
The firms that FINRA fined are:
- McDonald Investments, which formerly operated as part of KeyBanc Capital Markets Inc., a unit of KeyCorp, Cleveland. Fined $425,000.
- IFMG Securities, a unit of the holding company that owns LPL Financial Corp., Boston. Fined $450,000.
- Wells Fargo Investments LLC, a unit of Wells Fargo Bank Inc., San Francisco. Fined $275,000.
- PNC Investments, a unit of PNC Bank Inc., Pittsburgh. Fined $250,000.
- WM Financial Services Inc., now Chase Investment Services Corp., a unit of J.P. Morgan Chase & Company, New York. Fined $250,000.
McDonald Investments also was charged with unsuitable VA sales to elderly customers.
In settling each of these matters, none of the firms admitted nor denied the charges, but they consented to the entry of FINRA’s findings.
McDonald: FINRA has found that, between June 2004 and January 2006, a former broker at the firm made 32 unsuitable sales to 25 elderly bank customers, recommending each customer purchase a VA contract with an enhanced death benefit rider. The customers, all 78 years old or older, were either too old to be eligible for the rider, or very close to the ineligible age, according to FINRA.
“As indicated in the FINRA news release, this issue goes back to 2004 and 2005, and involves McDonald Investments, a firm that Key no longer owns,” a KeyCorp spokesperson says. “Key has agreed to the fine and will offer the affected clients the opportunity to close their annuity accounts, along with a full refund of the initial value of their purchase, plus interest and any surrender charges, adjusted for any withdrawals. KeyBanc Capital Markets no longer sells annuities.”
IFMG Securities: FINRA alleges that the firm used trade blotters to assess suitability and approve VA and mutual fund transactions that did not capture key information, such as the customer’s investment time horizon, risk tolerance and valuations of other financial assets, which FINRA says are required to enable broker-dealer principles to adequately assess suitability.
The activities cited in the FINRA charges occurred before LPL Financial’s parent acquired IFMG, LPL Financial spokesman Joseph Kuo says.