The Financial Industry Regulatory Authority has fined a firm $100,000 for failing to supervise recommendations of exchanges of deferred variable annuities, which violated Regulation Best Interest, and for failing to surveil for inappropriate rates of deferred VA exchanges.
From at least April 2022 to November 2023, World Investments LLC also failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to supervise recommendations of purchases and exchanges of registered index-linked annuities, according to FINRA's order.
World Investments of Lincroft, New Jersey, operates a general securities business, including the sale of deferred VAs and registered index-linked annuities. The firm has 133 active branches and about 337 registered representatives.
Between April 2022 and November 2023, the firm recommended over 150 deferred VA exchanges, most of which customers funded by surrendering an existing deferred variable annuity product, according to the order.
Throughout this period, World Investments failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to achieve compliance with FINRA Rule 2330 and Reg BI in connection with exchanges of one deferred VA for another.
"To the contrary, the firm's supervisory system and WSPs were not reasonably designed to provide to principals information necessary to assess the suitability of deferred variable annuity exchanges or to determine whether such transactions were in the customers' best interests," FINRA found.
During the relevant period, the firm used a standardized annuity exchange form to collect information about a customer's existing deferred VA that would be exchanged.
"The form, however, did not elicit all facts necessary to determine whether an exchange was suitable under FINRA Rule 2330, such as surrender charges, existing mortality and expense fees, charges for riders or other product enhancements, benefits that would be lost through the exchange, and whether the customer had transacted in another deferred variable annuity exchange within the preceding 36 months," the order states.
"Indeed, the firm did not require registered representatives to obtain, consider, or document all of this could, and often did, recommend deferred variable annuity exchanges despite not collecting this information, much less considering it," FINRA said.
The firm's WSPs did not require registered reps "to provide sufficient information to reviewing principals that would enable them to determine whether there was a reasonable basis to believe that the transactions were suitable and in the customers' best interests," the order continues.
Reviewing principals regularly approved deferred VA exchanges without information about potential surrender charges, the potential loss of existing benefits and whether the customer had transacted in another deferred variable annuity exchange within the preceding 36 months.
"Although the firm's WSPs nominally required reviewing principals to consider such information, in practice, reviewing principals routinely failed to seek or consider this critical information," FINRA said.
As a result, registered reps recommended, and principals approved, over 50 deferred VA exchanges "without information required to be considered by FINRA Rule 2330 and Reg BI and without any evidence that anyone had attempted to consider that information," the order states.
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