- within Intellectual Property, International Law, Litigation and Mediation & Arbitration topic(s)
- in European Union
FINRA fined eight separate firms a total of $6.2 million for failing to supervise adequately the sales of variable annuities ("VAs") and for other sales practice violations. FINRA also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.
FINRA stated that each of the firms failed to (i) supervise adequately VAs with multiple share classes, and (ii) provide registered representatives and principals with reasonable guidance concerning the narrow class of customers for whom the costs and features of L-share VAs are suitable. FINRA explained that L-share VAs are "complex investment products combining insurance and security features designed for short-term investors willing to pay higher fees in exchange for shorter surrender periods," and that L-share VAs had the "potential to pay greater compensation to the firms and registered representatives than more traditional share classes." According to FINRA, sales practice violations with respect to the L-share VAs were "compounded by the fact that the short-surrender L-shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods."
FINRA Executive Vice President and Chief of Enforcement Brad Bennett commented on the violations:
When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while, at the same time, buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met.
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