FINRA Fines Eight Firms a Total of $6.2 Million for Supervisory Failures Related to Variable Annuity L-Shares
Five Firms Ordered to Pay More than $6 Million to Customers
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined eight firms, including VOYA Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services, LLC, and FTB Advisors, Inc., a total of $6.2 million for failing to supervise sales of variable annuities (VAs). FINRA also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.
FINRA imposed sanctions against the following firms.
- VOYA Financial Advisors Inc., of Des Moines, IA, was fined $2.75 million.
- Cetera Advisor Networks LLC of El Segundo, CA, was fined $750,000.
- Cetera Financial Specialists LLC of Schaumburg, IL, was fined $350,000.
- First Allied Securities, Inc. of San Diego, CA, was fined $950,000.
- Summit Brokerage Services, Inc. of Boca Raton, FL, was fined $500,000.
- VSR Financial Services, Inc. of Overland Park, KS, was fined $400,000.
- Kestra Investment Services, LLC of Austin, TX, was fined $475,000.
- FTB Advisors, Inc. of Memphis, TN, was fined $250,000.
FINRA ordered the firms to pay the following to investors.
- Voya was ordered to pay at least $1.8 million to customers in this category.
- Cetera Advisors Networks, First Allied, Summit Brokerage Services and VSR were collectively ordered to pay customers at least $4.5 million.
The L-share VAs at the heart of this action are complex investment products combining insurance and security features designed for short-term investors willing to pay higher fees in exchange for shorter surrender periods. L-shares also had the potential to pay greater compensation to the firms and registered representatives than more traditional share classes. Each of the firms in this action lacked an adequate system to supervise variable annuities with multiple share classes, and failed to provide its registered representatives and principals with reasonable guidance regarding the narrow class of customers for whom the costs and features of L-share variable annuities were suitable.
These failures were compounded by the fact that the short-surrender L-Shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods.
FINRA found that VOYA and four of the Cetera Group firms failed to identify “red flags” of broad patterns of potentially unsuitable sales of this product combination.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “The complexity and expense of variable annuities require exceptional diligence in the training and supervision of the representatives who sell them and of the sales themselves. When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met."
These actions also included additional violations by Voya, Cetera Advisors Networks, Cetera Financial Specialists and VSR for failure to monitor rates of variable annuity exchanges at their respective firms.
First Allied was further found to have failed in its supervision of the sale of structured products and non-traditional exchange-traded funds. Lastly, First Allied and Kestra permitted the use of consolidated statements by their registered representatives without proper oversight.
In settling these matters, the firms neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, regulates all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.