The Financial Industry Regulatory Authority has fined PNC Investments $200,000 for failing to have a supervisory system to monitor its representatives’ rates of deferred variable annuity exchanges.
From at least June 2021 to the present, PNCI also failed to have written supervisory procedures to assess rates of exchanges, according to FINRA's order.
"Instead, when supervising VA exchanges, the firm relied on transaction-by-transaction supervisory approvals, along with a data-visualization dashboard — not addressed by the firm’s WSPs — that regional supervisors could use on an ad-hoc basis to calculate rates of exchange," the order states.
PNCI has approximately 1,500 branch offices and 1,200 registered reps.
The firm’s supervisory system "did not require the firm to determine if its associated persons had rates of effecting VA exchanges that raised for review whether such rates evidenced conduct inconsistent with FINRA rules or the federal securities laws as required by FINRA Rule 2330(d), and did not provide guidance as to how to make that determination," the order states.
Nor did the firm’s systems require tracking or further review of reps with potentially inappropriate rates of exchanges.
Under Rule 2330, firms must provide clients with information about the key features, benefits and risks of deferred variable annuities, including, but not limited to, any fees, charges and surrender periods.
Due in part to the complexity of these products, FINRA requires that firms provide more comprehensive and targeted protection to investors who purchase or exchange variable annuities.
FINRA did not identify any advisor misconduct tied to annuity exchanges by PNCI advisors.
In May, FINRA ordered another firm, AAG Capital, to pay a $100,000 fine and nearly $39,000 in restitution tied to annuity swaps. Some AAG clients gave up valuable living and death benefits or paid surrender charges in exchange for more expensive contracts, according to the regulator.
FINRA fined and suspended a rep at another firm over unsuitable exchanges earlier that month.
The regulator also requires firms to implement surveillance procedures to determine if any of their associated persons have rates of effecting deferred variable annuity exchanges "that raise for review whether such rates of exchanges evidence conduct inconsistent with applicable FINRA rules or the federal securities laws."
PNCI's supervisory system did not require supervisors to track or perform any further review of reps with exchange rates that raised for review whether their conduct was inconsistent with applicable FINRA rules or the federal securities laws, nor did the firm do so despite several reps having such rates of exchanges during this period, the order states.
The firm also did not provide guidance to assist supervisors in evaluating whether reps’ exchange rates "warranted further review or for them to otherwise assess representatives’ aggregate exchange activity," the order states.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.