FINRA Fines Securities America for Failure to Supervise

FINRA Fines Securities America for Failure to Supervise

The Financial Industry Regulatory Authority Inc. has fined brokerage firm Securities America for failing to supervise its brokers’ sales of a type of short-term variable annuity product that could have resulted in investors’ purchases of unsuitable expensive share classes. FINRA said that the lack of supervision raised concerns and as a result, the regulator issued a $175,000 fine.  

Securities America brokers violated or overlooked suitability concerns related to the share classes of the variable annuities being sold between August 2014 and January 2016. During this period, Securities America sold B-share VA contracts, the most commonly sold share class, and L-share contracts, which are more expensive because they have relatively short surrender periods and investors pay a higher fee in exchange for increased liquidity.

Securities America received approximately $53 million from the variable annuity sales, including $6.6 million from the sale of 1,904 L-share contracts. FINRA is questioning whether investors should have been sold the more expensive L-shares in the first place, raising concerns of suitability and lack of supervision.

Based on a history of industry-wide misrepresentation, high-commission products are often the target for misconduct by brokers and their affiliated firms.

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