As part of its continued variable annuity (“VA”) abuse crackdown, the Financial Industry Regulatory Authority (“FINRA”) recently censured and fined member firm Ameritas Investment Corp. (CRD# 14869) (“Ameritas”) $180,000 for alleged lapses in the supervision of VA sales by its financial advisors. In a letter of acceptance, waiver and consent (“AWC”), FINRA has disclosed that between September 2013 and July 2015, Ameritas sold 4,075 individual VA contracts. Of these sales, Ameritas sold nearly 700 L-share contracts, totaling about 17% of its overall VA sales, or about $11 million in aggregate VA L-share sales.
FINRA has prioritized VA sales practice misconduct as warranting enhanced regulatory oversight. Recent enforcement efforts by FINRA with regard to VAs has resulted in numerous fines levied in 2016 concerning allegations of sales abuse by brokers recommending unsuitable VAs and/or recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”).
VAs are very complex financial products that typically charge significant commissions and fees. When a financial advisor sells a VA, they will usually receive a sizeable commission, ranging anywhere from 3-7%. Additionally, a VA contract typically carries various fees, such as a mortality expense (in connection with the contract’s death benefit), investment expenses associated with the sub-accounts holding securities, and administrative expenses on the hybrid security / insurance product. Of significance, L-share contracts usually carry even higher commissions and fees than standard VAs, due to the fact that L-share contracts have shorter surrender periods (after expiration of a surrender period, an investor in a VA can exit their investment without incurring a surrender charge).
Because L-share VA contracts typically carry higher commissions and fees, there is a very real temptation for a financial advisor to sell his or her client an L-share VA, without first conducting a suitability analysis to determine that the product best meets the investor’s stated objectives and profile. Moreover, under applicable industry rules and regulations, brokerage firms like Ameritas must seek to ensure that their registered representatives are properly trained and supervised when it comes to selling financial products, particularly complex products like VAs.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have suffered losses due to a range of misconduct, including the unsuitable recommendation by a broker to purchase and/or switch from one variable annuity to another VA. Investors may be able to recover their losses in FINRA arbitration. Investors who wish to discuss a possible claim may contact our office at (866) 966-9598 or email@example.com for a no-cost, confidential consultation.