The Financial Industry Regulatory Authority Inc. fined H. Beck $400,000 on November 20, 2018 for failing to maintain and enforce its own written supervisory procedures. Failing to maintain their procedures has resulted in the unsuitable sale of L-share variable annuities tied to long-term riders.
H. Beck is an independent broker-dealer based in Maryland. It has been a member of FINRA since 1954.
For the past five years, H. Beck has sold a large number of annuities to its clients. For example, between January 2013 and December 2014, it sold more than 7,001 variable annuity contracts for almost $34.9 million in revenue. That includes almost 2,835 L-share contracts, which were sold for nearly $13.3 million in revenue. Many of those contracts were tied to long-term riders and some of them were sold to customers with long-term investments.
Different annuity contracts with varying share classes come with different surrender periods and fee amounts. The most common share class is the B-share contracts, and they have a seven-year surrender. However, L-share contracts have three to four surrender periods and usually higher fees. L-share contracts generally are 35 to 50 basis points higher than B-share contracts. When combined with long-term riders, a high fee, short-term L-share contract can get stretched to five years or longer for the holder to receive the full benefit.
H. Beck failed to ensure that specific supervisory procedures were met, therefore it failed to consider what is suitable in the sales of different variable annuity classes. H. Beck’s WSPs did not address fees, costs, and surrender periods in regard to different variable annuity share classes, especially L-share contracts with long-term horizons.
FINRA has also stated that H. Beck did not properly train its employees to ensure they understood these procedures.
According to FINRA, H. Beck was fined $425,000 in March 2015, after it was censured for failing to establish WSPs and a sufficient supervisory system. H. Beck then created new procedures, but failed to enforce them in the following years.
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