Rep in Hot Water Over Annuity Rider, Reverse Mortgage Recommendations

In November 2022, Shum willfully violated Reg Bl and FINRA Rule 2010, FINRA said, by recommending the purchase of a variable annuity to an older retail customer that was not in the customer's best interest in light of her investment profile, and in March 2023 he failed to safeguard the confidentiality of four customers' nonpublic information, including their Social Security numbers.

From August 2021 to October 2022, while registered with Grove Point, Shum recommended reverse mortgages to four customers, advised one customer regarding specific loan terms to seek, and helped all four customers prepare their loan applications by gathering and relaying information on their behalf, the order explains.

Two of those customers were seniors.

Before engaging in the activities, Shum did not disclose them to his firm. The firm had written policies and procedures that prohibited its registered reps from arranging for any personal financing for a customer without the firm's prior approval.

"Although Shum entered into a financial planning services agreement with one of the four customers, which was approved by the firm, the firm specifically advised Shum when it approved the agreement that he could not recommend reverse mortgages to customers or arrange for any other form of personal financing," the order explains.

Shum recommended that the customers invest a portion of the reverse mortgage proceeds "through accounts he serviced for them," and Shum reasonably expected to receive additional compensation from these investments, FINRA said.

Living Benefit Riders

As FINRA explains, some companies offer living benefit riders for variable annuities, which are optional annuity provisions that guarantee a defined payout while the annuitant is alive.

"These policies often allow the annuitant to draw from their death benefit (the sum of money paid to the annuitant's heirs upon their death) and are useful for customers who are concerned about running out of money while they are alive. Living benefit riders also have costs, including higher fees, depreciation of the death benefit (if drawn upon), and a new surrender schedule," FINRA states.

Grove Point's standing practice was to deny living benefit riders for customers older than 70 because older customers are unlikely to live long enough to benefit from the rider given its costs.

In November 2022, while associated with Grove Point, "Shum recommended that an 84-year-old senior customer invest an additional $400,000 in an existing variable annuity and purchase a living benefit rider," according to the order.

"Shum did not have a reasonable basis to believe that the features of the annuity were in the customer's best interest given her age," the order states. The customer told Shum "that she had low liquidity needs, and was therefore unlikely to benefit from the defined payout that the rider is designed to provide."

Shared Confidential Client Info With a Third Party

After leaving Grove Point and associating with Aegis Capital, Shum attempted to migrate certain Grove Point customers to Aegis.

To open accounts at Aegis, Shum needed to complete certain forms, which required him to share the customers' confidential, non-public information such as Social Security numbers and birth dates with Aegis, according to FINRA.

"In order to complete the Aegis onboarding forms, Shum emailed four confidential Grove Point forms that he retained after leaving Grove Point to a third-party business center," the order states.

The Grove Point forms contained birth dates and Social Security numbers.

"The customers did not authorize Shum to disclose their confidential information to the third-party business center or Aegis, nor were they given notice that such disclosure would be made," the order continues.

"After the Grove Point forms arrived on the systems of the business center, Shum printed them," the order states. "Shum then used portions of the information from the Grove Point forms to complete new account forms at Aegis."