Broker-Dealer Fined for Failing to Supervise Variable Annuity Suitability Recommendations

A broker-dealer settled FINRA charges for failing to (i) reasonably monitor, investigate and act upon red flags concerning variable annuity exchange recommendations and (ii) monitor use of external email and preserve business-related emails.

According to FINRA, the broker-dealer used an external exception-reporting system with elected categories and parameters to monitor potentially problematic variable annuity transactions. FINRA found that the selected parameters did not flag inappropriate rates for annuity exchanges or identify when customers had previously conducted an exchange within the last 36 months. FINRA said the broker-dealer did not have any other systems in place to monitor variable annuity exchanges. Additionally, FINRA found that the broker-dealer's principals failed to monitor for inappropriate rates of variable annuity exchanges with respect to their reviews and approval of individual exchange recommendations.

FINRA also concluded that the broker-dealer knew that a representative used an external email account for securities-related business to communicate and exchange company documents with their customers. The exchanged documents included some that were blank or incomplete but already submitted with customer signatures. FINRA said that after receiving the blank signed documents, the representative would later complete them for submission. FINRA found that the broker-dealer did not review or preserve any of the external email account documents or emails.

FINRA determined that the broker-dealer violated FINRA Rules 4511, ("General Requirements"), 3110 ("Supervision"), 2330 ("Members' Responsibilities Regarding Deferred Variable Annuities"), Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Section 17(a) ("Records and Reports") of the Exchange Act and Exchange Act Rule 17a-4 ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) restitution of $612,172.66 with interest in the amount of $25,183.21 and (iii) undertake to retain an independent consultant.