Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network have agreed with the Financial Industry Regulatory Authority Inc. to pay more than $1.4 million in restitution, plus interest, to approximately 100 customers, as well as fines totaling $675,000, for failing to supervise recommendations that customers switch from variable annuities to other investments.
Finra found that from January 2011 through August 2016, Wells Fargo failed to supervise the suitability of recommendations that customers sell a variable annuity and use the proceeds to purchase one or more products such as mutual funds or unit investment trusts. At least 101 potentially unsuitable switches occurred, Finra said.
In spite of directives in the firms’ supervisory procedures, Finra said the firms did not obtain sufficient data from variable annuity issuers to review the suitability of variable annuity surrenders and subsequent switches, including surrender fees.
The firm’s procedures also required them to automatically send switch letters to clients confirming their understanding of the transaction, as well as related risks and expenses. The firms did not, in fact, have an alert to identify switches from variable annuities to other investments, Finra said, and the firms did not send switch letters to affected customers.
In settling this matter, the firms neither admitted nor denied the charges, but consented to the entry of Finra’s findings. In addition, Finra said, in August 2016 the firms took several steps to improve their supervision of switches involving variable annuities, including developing a switch alert to identify when the proceeds from a variable annuity liquidation are used to purchase an investment company product.
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