Eight firms, including VOYA Financial Advisors and broker-dealer subsidiaries of Cetera Financial Group, were fined $6.2 million by FINRA on Wednesday for failing to supervise sales of variable annuities, and also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities.
FINRA imposed sanctions against the following firms.
- VOYA Financial Advisors Inc., of Des Moines, Iowa, was fined $2.75 million.
- Cetera Advisor Networks LLC of El Segundo, Calif., was fined $750,000.
- Cetera Financial Specialists LLC of Schaumburg, Ill., was fined $350,000.
- First Allied Securities, Inc. of San Diego was fined $950,000.
- Summit Brokerage Services, Inc. of Boca Raton, Fla., was fined $500,000.
- VSR Financial Services, Inc. of Overland Park, Kansas, was fined $400,000.
- Kestra Investment Services, LLC of Austin was fined $475,000.
- FTB Advisors, Inc. of Memphis was fined $250,000.
The following firms were also ordered to pay customers who purchased L-share VAs with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.
- 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 complexity and expense of variable annuities require exceptional diligence in the training and supervision of the representatives who sell them and of the sales themselves,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met.”
FINRA said that the firms sold the complex L-share products, which combine insurance and security features and are designed for short-term investors willing to pay higher fees in exchange for shorter surrender periods.
L-shares, FINRA notes, also have the potential to pay greater compensation to the firms and registered reps than more traditional share classes.
“Each of the firms in this action 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,” FINRA said.
These failures “were compounded by the fact that the short-surrender L-Shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods.”
FINRA found that VOYA and four of the Cetera Group firms failed to identify “red flags” of broad patterns of potentially unsuitable sales of L-Shares.
Additional violations were also found by Voya, Cetera Advisors Networks, Cetera Financial Specialists and VSR for failure to monitor rates of variable annuity exchanges at their respective firms, FINRA states.
First Allied was further found to have failed in its supervision of the sale of structured products and non-traditional exchange-traded funds, while First Allied and Kestra permitted the use of consolidated statements by their registered reps without proper oversight, the self-regulator said.
Joseph Kuo, a spokesperson for Cetera Financial Group, said that Cetera is “pleased to have reached an agreement with FINRA and put these matters behind us.”
The firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
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