The Financial Industry Regulatory Authority (“FINRA”) fined eight firms, including VOYA Financial Advisors (CRD# 2882) (“VOYA”) and five broker-dealer subsidiaries of Cetera Financial Group (Cetera Advisor Networks LLC (CRD# 13572)), for failing to supervise sales of variable annuities (VAs). The eight firms are required to pay a fine of $6.2 million in total.
The eight firms and the respective fines are as follow: VOYA, fined $2.75 million; Cetera Advisor Networks, fined $750,000; Cetera Financial Specialists LLC (CRD# 10358), fined $350,000; First Allied Securities, Inc. (CRD# 32444), fined $950,000; Summit Brokerage Services, Inc. (CRD# 34643), fined $500,000; VSR Financial Services, Inc. (CRD# 14503), fined $400,000; Kestra Investment Services, LLC (CRD# 42046), fined $475,000; and FTB Advisors, Inc. (CRD# 17117), fined $250,000.
Cetera Financial Group owns Cetera Financial Specialists, Cetera Advisor Networks, First Allied, Summit, and VSR. For more information on Cetera, visit our firm’s background page on the broker-dealer and its subsidiaries.
FINRA Sanctions for L-share Variable Annuity Violations
The FINRA sanctions concerns the broker-dealers’ failure to establish, maintain, and enforce supervisory systems reasonably designed to identify red flags in the sale of multi-share class variable annuities, including L-share VAs. L-share VAs typically provide for a shorter surrender period of 7 years. L-shares are designed for investors with short-term time horizons or who want the option of being able to surrender the L-share sooner than other VAs. Due to their shorter life, they have much higher costs than other VAs.
According to the Acceptance, Waiver & Consents (“AWCs”) entered into by VOYA and Cetera, the firms failed to identify and investigate red flags of customers. For instance, many customers who had long-term goals were advised to invest in the L-share VAs. FINRA found that the firms either ignored or failed to pick up on that according to the AWCs.
The sale of these VAs and L-share VAs are a big business for these firms. According to the AWCs, FINRA found that all the firms derived at least 18% of their revenue from selling VAs, with Summit and Cetera Financial Specialists earning a staggering 30% and 34%, respectively, of their revenue from the sale of VAs.
The sale of these VAs and L-shares have been a particular source of scrutiny for FINRA, as they are complex and often marketed to seniors. In response to FINRA’s scrutiny in 2016, some firms, such as Pruco Life Insurance Co., an annuity unit of Prudential Financial Inc., and Jackson National Life Insurance Co. have closed L-share sales in certain VAs altogether. VOYA has particularly had issues with these products, yet continues to sell them despite restricting sales of L-shares and other VAs two times in 2015 due to FINRA’s increased efforts to regulate L-shares. VOYA was also dinged with a sanction for $50,000 by the Florida Office of Financial Regulation for allegedly failing to supervise the sale of variable annuities, according to VOYA’s detailed BrokerCheck report.
Contact our Firm if You’ve Lost Money
If you or someone you know has lost money on variable annuities, L-shares, or other variable annuity products, you may be able to recover your lost money. Often times, these products are marketed to elderly, senior retirees which may not be suitable for those investors, as suggested by $6.2 million sanction FINRA imposed on the firms for this very conduct.
Silver Law Group represents the interests of investors who have been the victims of investment fraud. If you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.