The Financial Industry Regulatory Authority has fined a former rep and suspended him for 12 months for recommending 10 unsuitable L-share variable annuity exchanges to nine customers, and two unsuitable variable annuity purchases to two customers — which resulted in the customers paying higher fees.
According to FINRA's order, from June 2019 to February 2020, Thomas Vigil made the recommendations without a reasonable basis to believe that the they were suitable.
In connection with these transactions, "Vigil made negligent misrepresentations and omissions of material fact about the variable annuities’ costs on transaction documents," the order states. He also forged a customer’s variable annuity application by photocopying the customer’s signatures from a different document.
In addition to the 12-month suspension, Vigil was fined $10,000 and ordered to pay $25,436 in restitution, plus interest.
As the order explains, variable annuities allow customers to choose from different contract features and options, including various share classes and optional riders. L-share annuities, for example, are designed so that investors pay a higher fee in exchange for the increased liquidity provided by a shorter surrender period.
"Because L-share contracts generally charge higher fees than comparable B-share contracts, the sale of such contracts may raise suitability concerns when such contracts are sold with an optional long-term living benefit rider, such as a Guaranteed Minimum Withdrawal Benefit (GMWB) rider," FINRA states.
GMWB riders "typically require the customer to hold the variable annuity for an extended period of at least five years, without making withdrawals, to obtain the full benefit of the rider," according to FINRA.
In all instances, Vigil recommended that the customers exchange their existing variable annuity for an L-share variable annuity with a four-year surrender period that was paired with a GMWB rider.
"The specific rider that Vigil recommended provided the customer at least 10 years of 6% guaranteed annual step-ups to the benefit base, provided that the customer did not make any withdrawals during that period," the order states. "Vigil did not conduct or document any assessment of the suitability of his recommendation that the customers exchange their existing variable annuity" for an L-share contract paired with a long-term rider.
Specifically, the order continues, Vigil "did not consider, or document his rationale for, recommending that the customers exchange their existing variable annuity for a variable annuity share class designed for customers with short-term liquidity needs, combined with a GMWB rider that required a minimum of 10 years to realize its full benefit."
He also failed to conduct a comparative analysis of the benefits, fees and costs of the surrendered and replacement variable annuities.
"In all instances, Vigil incorrectly stated in his documentation of the exchanges that the replacement variable annuity was lower in fees when, in fact, the replacement annuity caused customers to increase their base expenses by 50 basis points," FINRA said. "As a result of Vigil’s unsuitable exchange recommendations, Vigil’s customers collectively paid $25,436 in additional costs."
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