FINRA Fines Firm for Inadequate Supervision over Hiring Practices and Annuity Sales Practices

A firm settled FINRA charges for failing to maintain adequate supervisory procedures over variable annuity recommendations and hiring practices.

According to the AWC, the firm failed to make sure its representatives obtained sufficient customer information—such as risk tolerance, financial situation, and potential loss of rider benefits—before making recommendations. FINRA found that the firm lacked processes to confirm whether customers were properly informed about key product characteristics, resulting in recommendations that were not reasonably assessed for suitability or best interest. 

FINRA found that the firm did not maintain written policies addressing best interest standards and failed to implement surveillance procedures to detect potentially inappropriate exchanges. The firm provided no guidance identifying who was responsible for conducting reviews, how often they should occur, or what criteria should be used to evaluate transactions. As a result, supervisors approved applications containing inaccurate information about product costs, surrender periods, and optional features; and in some cases, there was no evidence that principals reviewed annuity applications at all. FINRA concluded that the firm failed to establish an adequate supervisory system to oversee recommendations involving deferred variable annuity purchases and exchanges.

In addition to failures related to sales practices, FINRA found that the firm failed to establish an adequate supervisory system to oversee its hiring practices. Although the firm’s procedures described using a checklist to verify Form U4 information, FINRA determined the firm did not use this checklist and lacked controls to determine if required steps were completed. Further, the firm did not maintain required records of its hiring investigations, background checks, or disclosure forms.