As part of its ongoing enforcement focus on variable annuity (“VA”) sales practices, the Financial Industry Regulatory Authority (“FINRA”) recently censured and fined Hornor, Townsend & Kent, Inc. (“HTK”) $275,000 for its alleged failure to supervise its brokers’ sales of VAs. HTK (CRD# 4031), headquartered in Horsham, PA, is a full-service broker-dealer that offers a range of investment, including VAs.
In recent months, FINRA has ramped up its enforcement focus on VA sales practices. Ever since handing down a $20 million fine against MetLife Securities, Inc. (“MSI”) in May, 2016 (in addition, FINRA ordered MSI to pay $5 million to customers in connection with allegations of making negligent material misrepresentations and omissions on VA replacement applications), FINRA enforcement has continued to fine numerous member firms concerning VAs sales practice issues. In particular, FINRA has targeted brokers recommending unsuitable VAs, in the first instance, as well as recommending the sale of one VA for another in order to generate commissions (a practice akin to churning, and commonly referred to as “switching”).
FINRA’s recent censure and fine against HTK involves sales of L-share VAs, which were allegedly made without proper supervision. FINRA determined that the activities in question took place between April 2013 and June 2015; during this time frame, it was determined that 7,398 or nearly 47% of the 15,815 VA contracts sold by HTK registered representatives were L-share contracts.