Finra fines Securities America $175,000 for failure to supervise variable annuity sales
The regulator said the lack of supervision raised concerns that investors were sold more expensive share classes that weren't suitable for them.
The Financial Industry Regulatory Authority Inc. fined Securities America $175,000 for failing to properly oversee the sale of a certain type of short-term variable annuity product.
According to Finra, Securities America brokers violated or overlooked suitability concerns related to the share classes of the variable annuities being sold during the relevant period, between Aug. 4, 2014 and Jan. 28, 2016.
During this period, Finra said Securities America sold both B-share VA contracts, the most commonly sold share class, and L-share contracts, which are more expensive because they have relatively short surrender periods. In other words, investors pay a higher fee in exchange for increased liquidity.
According to Finra, during the relevant period, Securities America received approximately $53 million from the sale of variable annuities, including approximately $6.6 million from the sale of 1,904 L-share contracts. Finra said the lack of supervision raised suitability concerns as to whether clients should have been sold the more expensive L-shares.
Securities America did not respond to a request for comment.
Adam Gana, a securities lawyer not affiliated with the case, said the specific class of variable annuities often court suitability abuses because they come with higher commissions.
“It’s imperative when selling annuities that brokerage firms adequately disclose all the risks, fees and durations of an annuity at a minimum,” he said. “I find that firms regularly misrepresent that information. High-commission products become a breeding ground for this type of misconduct.”
Learn more about reprints and licensing for this article.
