FINRA this week penalized Centaurus Financial Inc., a large broker-dealer in southern California, $1.1 million for poor supervision of variable annuity sales, including switches or exchanges, a practice that can drive up costs to the clients and boost commissions for firms and advisors.
As part of the settlement, which was released Wednesday, FINRA fined Centaurus Financial, which works with 570 registered reps and has its main office in Anaheim, $475,000 and ordered the firm to pay restitution of $634,000.
Centaurus Financial consented to FINRA’s findings without admission or denial.
FINRA cited the firm’s shortcoming complying with Regulation Best Interest as part of the reasoning for its penalty. Reg BI requires firms to act in a client’s best interest when making a recommendation about an investment product or strategy.
The Securities and Exchange Commission last year fined Centaurus Financial $160,000 for Reg BI compliance shortcomings in connection to the sales and recommendation of GWG Holdings corporate bonds; GWG went bankrupt in 2022 after dozens of broker-dealers sold the private bonds. Centaurus was one of the most prominent sellers of GWG L bonds.
Reg BI went into place as the industry sales standard at the end of June 2020.
Paul King, general counsel for Centaurus Financial, did not return a phone call Friday to comment.
FINRA also fined a Centaurus broker, Patrick Carroll, $10,000 and suspended him for 10 months for recommending dozens of unsuitable variable annuity exchanges from 2016 to 2019, which caused customers to incur surrender charges. Like his firm, Carroll consented to FINRA’s findings without admission or denial.
According to FINRA, from February 2016 and December 2025, the firm’s supervisory system and written supervisory procedures were not reasonably designed to supervise certain exchanges and purchases of variable annuities.
“From February 2016 through December 2019, it failed to reasonably supervise certain of Carroll’s recommendations regarding the exchange of variable annuities,” according to the FINRA consent order. “From June 30, 2020, to December 31, 2025, the firm failed to reasonably supervise two representatives and violated Reg BI by failing to comply with Reg BI’s Conflict of Interest and Compliance Obligations."
The brokers’ recommended to clients to buy B-share variable annuities and enter into advisory agreements with the customers to manage the variable annuities’ sub-accounts, according to FINRA.
From February 2016 through the end of last year, Centaurus Financial “earned a sizeable percentage of its revenue” from selling annuities, including variable annuities, according to FINRA. Such products are notoriously complex because of various charges and fees and require close supervision of brokers selling them.
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