As it continues to face scrutiny over its penalties of broker-dealers and its overall role as a regulator, FINRA in the past few days has issued significant penalties against industry leading broker-dealers, J.P. Morgan Securities and Ameriprise Financial Services, stemming from supervisory issues of brokers and products.
FINRA on Monday said it had fined J.P. Morgan Securities $3.25 million for failing to “reasonably supervise a registered representative who generally recommended an investment strategy that involved taking large, concentrated positions in high-yield securities using leverage” from January 2016 to April 202, according to the FINRA settlement.
“Customers in this strategy lost money during a period of significant market volatility starting in March 2020,” according to FINRA.
Meanwhile, FINRA at the end of last week penalized Ameriprise Financial Services $1.4 million for supervision shortcoming from January 2015 to December 2018 of advisors variable annuity sales and switches.
The firm allegedly failed “to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to supervise recommendations of certain variable annuity exchanges involving contracts with guaranteed lifetime withdrawal benefit, GLWB, riders,” according to FINRA.
Brokers generate commissions when they sell new variable annuities to customers to replace others. A “rider” refers to additional customer benefits in the annuity contract that typically increase the price for the client.
“Specifically, Ameriprise did not provide sufficient guidance to registered principals for determining whether certain customers would benefit sufficiently from the rider’s growth credit feature before commencing withdrawals to justify the higher fees, which applied for the duration of the contract,” according to FINRA.
The two firms are among the most prominent in the retail securities industry and financial advice market today. J.P. Morgan Securities has 35,000 registered representatives across its giant banking and wealth management network and Ameriprise Financial Services has close to 15,000.
A spokesperson for J.P. Morgan Securities declined to comment, although the firm in the FINRA action said it consented to the fine without admission or denial.
FINRA’s penalty against Ameriprise was in two parts: a fine of $450,000 and restitution to clients of $994,000.
“We are pleased to have resolved this matter, which involved a very small number of variable annuity transactions from many years ago,” an Ameriprise spokesperson wrote in an email. “Importantly, the settlement did not identify any transactions as unsuitable for clients.”
FINRA continues to face scrutiny at a time when regulation is out of favor in Washington under the business friendly administration of Donald J. Trump.
For example, at Congressional hearings in March, some lawmakers questioned whether the self-regulatory organization, which acts at the behest of the Securities and Exchange Commission, even has a right to exist.
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