Improper Variable Annuity Sales Practices Lead to Fine, Restitution Order by FINRA

by InvestorLawyers on April 6, 2012

in Arbitration,FINRA,Suitability,Variable Annuities

The Financial Industry Regulatory Authority (FINRA) recently fined one of the United States’ largest independent broker-dealers, Cadaret Grant. Grant must pay a $200,000 fine in addition to restitution to investors because of improper sales practices of variable annuities to elderly investors. According to investment fraud lawyers, improper sales of variable annuities are a common cause for securities arbitration claims.

Improper Variable Annuity Sales Practices Lead to Fine, Restitution Order by FINRA

According to investment fraud lawyers, variable annuities are popular investment vehicles for retirement. Essentially, they are insurance contracts that are joined with an investment product. They have insurance-like properties but function as tax-deferred savings vehicles by providing a tax deferral using the insurance policy. The combination of the investment product and insurance contract provides four appealing features: a tax deferral on earnings, the ability to name a beneficiary for the account, the ability to use your life expectancy to receive payments for life and the ability to receive guarantees based on the insurance component. However, variable annuities are also a common vehicle for investment fraud, according to securities arbitration lawyers.

One of the registered representatives for Cadaret Grant sold 13 elderly clients unsuitable death benefit riders to variable annuities from 2006-2008, according to FINRA’s decision announcement. All 13 of the clients were age 77 or older. Apparently, the death benefit was only effective through age 80. Furthermore, despite the fact the death benefit did not apply beyond age 81, it cost the clients 25 additional basis points in fees for the duration of the policy. Apparently, four of the clients could not benefit from the rider in any way.

FINRA’s findings also indicate that the firm ignored red flags regarding the representatives. These red flags included multiple customer complaints. Some of these complaints, which were on Uniform Application for Securities Industry Registration, were related to annuity sales.

Cadaret Grant has agreed to offer rebates of the original policies’ purchase price, plus interest and charges, and rescind the policies’ purchase. Furthermore, they will comply with a comprehensive review of policies and procedures related to the suitability of variable annuities.

If you believe you have been the victim of variable annuities fraud, either through dealings with Cadaret Grant, or any other firm, find out more about your legal rights and options by contacting a securities arbitration lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

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