The Financial Industry Regulatory Authority fined Woodbury Financial Services $225,000, claiming the firm’s system for supervising additions to existing variable annuities wasn’t reasonably designed to achieve compliance with applicable securities laws and FINRA rules, including those governing suitability.
The problem “affected more than 3,800 transactions” from June 2013 until June 2015, violating NASD Rule 3010 (for conduct before Dec. 1, 2014) and FINRA Rule 3110 (for conduct on and after Dec. 1, 2014), according to FINRA.
Woodbury submitted a letter of acceptance, waiver and consent to FINRA in which the firm was censured and agreed to the $225,000 fine, but didn’t admit or deny the findings, according to FINRA.
The findings stated that the firm didn’t review additions resulting from recommendations to invest additional funds in existing variable annuity contracts, either before or after the transaction, unless the addition was funded via the proceeds of an exchange. Woodbury also didn’t use surveillance tools, including exception reports, to monitor additions to variable annuities and provide the firm with information about potentially unsuitable transactions, FINRA said.
The firm’s review system, meanwhile, didn’t provide itself with sufficient information to permit it to concentrate on “areas of variable annuity additions or patterns of additions at the firm that posed the greatest numbers and risks of potential suitability violations, including additions resulting in customers investing a high concentration of their net worth in variable annuities,” according to FINRA.
Until a change in Woodbury’s ownership resulted in changes in its transaction review systems after the relevant period, the firm relied on a general periodic branch audit process and an unrelated process for reviewing commission payments in excess of $50,000 to supervise additions not funded by an exchange, which were the vast majority of variable annuity additions, according to FINRA. But “neither the branch audit process nor the large commission review process were reasonably designed to provide sufficient information about potentially unsuitable additions,” FINRA said.
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