FINRA Enforcing Annuity Sales Rules

The Financial Industry Regulatory Authority, also known as FINRA, has been enforcing all types of annuity transaction misdeeds nationwide according to recent enforcement reports from the agency, writes Elizabeth Festa in a recent article for LifeHealthPro.com.

FINRA recently censured a firm and fined it $40,000 to settle allegations that the firm failed to maintain required documentation about variable annuity transactions and it's customers. Sampled transactions of the firm, Allied Beacon Partners, Inc., Richmond, Va., lacked certain customer information or documentation needed in order to make a reasonable suitability determination.

“A large portion of variable annuity transactions sampled revealed the firm’s failure to ensure that a designated principal adequately reviewed and approved the customer’s application prior to its transmission to the issuing insurance company,” FINRA wrote.

FINRA reported that the firm’s Written Supervisory Procedures (WSPs) for variable annuity transactions were deficient. The WSPs identified one individual as having the responsibility to supervise variable transactions, but another individual not identified in the WSPs was actually the primary person responsible for supervising VA transactions, FINRA uncovered.

FINRA's findings also said that the WSPs did not address how the firm would monitor compliance with SEC Rule 15c2-8, which requires that a prospectus be delivered to customers. The firm was unable to provide any documentation that a prospectus was sent to any of the customers, FINRA alleged.

FINRA also settled a matter involving a registered representative who recommended unsuitable transactions, a mortgage and a variable annuity, to a customer, a 53-year-old widow who worked as an administrative assistant for a public school system. Her annual salary was approximately $55,000, she owned a home unencumbered by a mortgage and valued at approximately $500,000, and she had an investment portfolio valued at approximately $160,000 in retirement accounts and $100,000 in certificates of deposit.

In another recent case, FINRA found that the representative did not have a reasonable basis for recommending that the customer mortgage her primary residence to invest $300,000 in a variable annuity, given that the customer intended to retire in seven years, had limited income, expected an equally limited retirement income and would have an insufficient monthly income to make the mortgage payments.

FINRA concluded that the registered representative’s conduct violated rules of ethical standards and rules concerning recommendations to customers. FINRA fined the representative $5,000 and suspended him in all capacities for 10 business days.

In another FINRA case, a registered representative in Naples, Fla.,was fined $25,000 and suspended from association with any FINRA member in any capacity for three month. He consented to findings that he recommended and executed a variable annuity replacement contract for a member firm customer in a state in which he was not licensed to sell insurance products and included false information in the firm’s electronic books and records.

FINRA's findings stated that he logged into his member firm’s Web-based system utilized by firm sales staff to complete transaction paperwork for annuity contract purchases reporting that the customer was a New York state resident. When the system rejected the replacement transaction because the deferred VA product was not offered to New York residents and because he did not hold the requisite state insurance license, he listed the customer’s state of residence as Florida.

The National Association of Insurance Commissioners (NAIC) revised its annuity sales model regulation in March, 2010, to provide annuity protections for consumers of any age, (such as the 53 year-old widow), requiring insurer reviews of every annuity transaction, and clarifying that insurers are responsible for compliance with annuity protection provisions -- even when insurers contract with third parties.

A Florida regulatory-supported bill died in the Florida Banking & Insurance Committee back in March, 2012. Florida, which has one of the highest senior population rates in the country, would have become the 20th state to enact the revised model law on annuities.

If you or a family member have become alleged victims of annuity or insurance fraud, contact an attorney at Soreide Law Group for a free consultation on how to recover your investment losses. To speak with an attorney, call 888-760-6552, or visit https://www.securitieslawyer.com.
Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court, and before the Financial Industry Regulatory Authority (“FINRA”).