The Financial Industry Regulatory Authority Inc. has fined eight firms a total of $6.2 million and ordered five of them them to pay another $6.3 million in restitution for failing to supervise the sales of variable annuities.
As part of the settlement, Finra imposed sanctions against Voya Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services and FTB Advisors Inc., according to its action notice. The firms entered into the settlement without admitting nor denying the charges.
Voya was ordered to pay its customers at least $1.8 million, while Cetera Financial Group's subsidiaries, Cetera Advisor Networks, First Allied, Summit Brokerage and VSR will collectively pay customers at least $4.5 million.
"We are pleased that this matter has been resolved," said a Voya spokesperson. "At Voya, we are committed to providing clear and comprehensive information to our clients – including details on fees, expenses and costs associated with their investments. We support transparency and candid disclosures and continually seek to enhance our policies and procedures on an on-going basis to better serve our customers."
“We are pleased to have reached an agreement with Finra and put these matters behind us,” said Joseph Kuo, a spokesperson for Cetera Financial Group.
Kestra Investment Services did not immediately return call for comment. Mark Griffin, counsel for FTB Advisors, did not immediately reply for comment.
The variable annuities under scrutiny were L-share annuities that are considered “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” Finra stated that L-share annuities could “pay greater compensation to the firms and registered representatives than more traditional share classes.”
The L-share annuities were often found to be bundled into a complex product that combine expensive guaranteed income and withdrawal riders that can only provide benefits over longer holding periods. Finra said such complex investment products are only suitable for a narrow class of customers, and that the firms have not provided its advisers with “reasonable guidance” on discerning this class of customers.
According to the notice, firms should have picked up on the “red flags” that this product could be potentially unsuitable for the customer.
"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,” said Brad Bennett, Finra executive vice president and chief of enforcement.
The Finra action follows a
previous action brought agaginst Metlife Securities Inc., which was fined $20 million for compliance failures in switching clients from
one variable annuity to another, and ordered to pay $5 million to customers.
In addition to the unsuitable investment violation, Finra also found that Voya, Cetera Advisors Networks, Cetera Financial Specialists and VSR did not monitor rates of variable annuity exchanges.
First Allied and Kestra were both found to have other compliance failures in their oversight and supervision of advisers.
