L-share variable annuity scandal results in $6.2M FINRA fine
Eight investment firms will soon pay $6.2 million in Financial Industry Regulatory Authority fines for legal violations. The violations relate to unsuitable L-share variable annuity sales. Five of the firms will also pay restitution totaling $6.3 to customers who purchased the annuities.
The investment firms involved in the unsuitable variable annuity sales were:
- Voya Financial Advisors
- Kestra Investment Services
- FTB Advisors, Inc.
- Five affiliates of Cetera Financial Group
These firms did not suffer a conviction at trial. Instead, they entered into a settlement and neither admitted to nor denied the charges.
Variable annuities as an investment
Variable annuities are highly illiquid investments that lock away an investor’s money for years. As such, they are not suitable for elderly investors in particular, who need their money to stay liquid and available to them. In fact, variable annuities are not suitable for anyone who wants to have full and unfettered access to their savings.
Here are more reasons why variable annuities are questionable investments:
- Investors cannot access their money without suffering huge financial penalties
- Investors who buy annuities pay high fees
- The brokers who sell annuities receive high commissions, creating a serious conflict of interest
- Annuities are often sold as safe and conservative income producers when in some cases they are very risky investments.
L-share variable annuities: Not suitable for the average investor
In the instant lawsuit, the firms allegedly sold unsuitable, L-share variable annuities to the investors in the case. FINRA claimed that the L-share annuities were too complicated and expensive, and thus unsuitable, for the investors who purchased them. In addition, the firms received greater compensation for selling L-shares annuities rather than more suitable investments.
The L-share annuities were also highly illiquid investments. Although they offered a guaranteed income, the benefits can only be realized over extended holding periods. According to FINRA, the L-share annuities were only suitable for an extremely narrow category of investor.
FINRA notice offers stern warning about L-share annuities
FINRA has released a notice, saying that brokerage firms have a duty to supervise the stockbrokers they employ. According to FINRA, broker-dealers must identify red flags related to L-share annuity sales. They must also prevent the unsuitable sale of L-share annuities or face the consequences.
FINRA’s executive vice president further claimed that failure to supervise L-share annuity shares is a sign that a firm is not meeting its FINRA supervisory obligations.
Not the only recent FINRA annuity action
This is not the only recent FINRA action related to variable annuities. FINRA also fined Metlife Securities $20 million for annuity-related compliance mistakes related to “annuity switching.”
Annuity switching happens when a broker-dealer unsuitably recommends that an investor liquidates one annuity in order to buy a new one. This is unlawful because, in most cases, the early liquidation of one annuity to purchase another annuity will trigger lots of unnecessary fees and penalties. Annuity switching also generates a high profit for the brokers who get away with it.
Did your broker sell you a variable annuity?
Whether your broker sold you a variable annuity or an L-share variable annuity, if you lost money, you might have a claim to get your money back. Contact the Consumer Investor Resource Center today, and we will talk to you about your potential securities negligence case and advise you of your legal rights and options to seek a financial recovery.