FINRA fined four firms—National Planning Corporation, Investment Centers of America, SII Investments, and IFC Holdings aka INVEST Financial Corporation—a total of $1.7 million and ordered $6 million in restitution for deficient supervisory systems and procedures in the firms' variable annuities (VA) business, specifically pertaining to how the firms market and sell L-share contracts (as opposed to B-share contracts) with long-term income riders, which investigators say is often an unsuitable recommendation for investors with long-term investment time horizons.
Additionally, FINRA cited Investment Centers of America and SII Investments for failing to possess an adequate supervisory system and written procedures to ensure that customers received sales charge discounts on eligible purchases of Unit Investment Trusts (UITs).
The findings state that between January 2013 and June 2015, the firms' deficient supervisory systems failed to ensure that the VA share class contracts that representatives and brokers at each of these firms recommended to clients were suitable; the report states that during the relevant period, the firms received over $100 million from L-share contract sales and $432 million from all VA sales.
In raising concerns over suitability, investigators explained that firms sold L-share VA contracts to long-term investment horizon customers who would have been better-served with a B-share contract, and that the representatives also recommended long-term income riders to these customers that were unsuitable for both the investor and for the L-share contract sold to them, which often had surrender periods shorter than the length of time required to hold a long-term income rider in order to maximize the rider's benefit.
The AWC identified several red flags such as this that FINRA claims the firms failed to identify and/or investigate, finding that many of the customers who purchased L-share contracts indicated that they had a long-term investment horizon, and of these customers, a significant number had purchased long-term riders.
The alleged UIT violations at Investment Centers of America and SII Investments concerned a longer time period—2010 through 2015—also involved supervision failures, and allegedly resulted in customers paying excessive UIT sales charges of over $300,000 when those firms failed to apply sales charge discounts to eligible UIT purchases.
As part of the AWC, the firms consented to censures and the following sanctions:
> National Planning Corporation: $650,000 fine;
> Investment Centers of America: $115,000 fine;
> SII Investments: $325,000 fine;
> IFC Holdings aka INVEST Financial Corporation: $600,000 fine.
National Planning Corporation, SII Investments, and IFC Holdings also agreed to a FINRA order pertaining to L-share variable annuities with long-term income riders which requires the firms to pay no less than $6 million in restitution to customers who purchased L-share VAs with long-term income riders between February 2013 and June 2015 and those who currently hold these contracts at any affiliate of the aforementioned National Planning Firms.
If you have invested with National Planning Corp, Investment Centers of America, SII Investments, or IFC Holdings in variable annuity L-share contracts with long-term income riders or a similar product that was unsuitable given your investment objectives and preferences, such as a long-term investment time horizon, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.