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Eight Broker-Dealers Fined Over Variable Annuity Sales

By Alex Padalka July 26, 2018

Self-regulator Finra has fined four Advisor Group broker-dealers and another four broker-dealers on the National Planning Holdings network a total of $2.7 million for alleged failures in supervising the sales of variable annuities, according to two letters of acceptance, waiver and consent published on the industry self-regulator’s website.

Advisor Group’s Royal Alliance Associates, FSC Securities Corporation, SagePoint Financial and Woodbury Financial Services, as well as NPH’s broker-dealers National Planning Corporation, IFC Holdings (also known as Investment Centers of America), SII Investments and INVEST Financial Corporation, allegedly lacked a supervisory system and written procedures to oversee its representatives’ sales of the product and didn’t train the representatives on the sales, Finra says. The four NPH broker-dealers as well as Advisor Group’s Royal Alliance allegedly failed in supervision and training from February 2013 to December 2015 while the other three Advisor Group broker-dealers allegedly failed from January 2013 to December 2014, according to the regulator.

The firms allegedly sold variable annuity contracts in various share classes, including L-share and B-share contracts, Finra says. Because L-share contracts have shorter surrender periods than most B-share contracts, they typically come with annual fees that are up to 50 basis points higher and can be further complicated by long-term riders, according to the regulator. Therefore, L-share contracts may not be suitable for investors with long-term investment horizons, Finra says. But the four broker-dealers’ procedures allegedly didn’t address the suitability issues nor the fees and costs of the different classes nor adequately trained their representatives on the suitability concerns, according to the letters of consent.

From February 2014 to March 2016, Royal Alliance also allegedly lacked a supervisory system to determine whether its representatives had inappropriate rates of variable annuity exchanges, according to the regulator. And from April 2010 to March 2015, ICA and SII also allegedly failed to have a supervisory system and written procedures to ensure their clients received sales charge discounts on eligible purchases of unit investment trusts, Finra says.

All eight firms agreed to the settlement without admitting or denying Finra’s findings, according to the letters of consent.


Royal Alliance agreed to a fine of $350,000, FSC and SagePoint to a fine of $200,000 each, and Woodbury to a fine of $250,000, Finra says. NPC consented to a fine of $650,000, ICA to a fine of $115,000, SII to a fine of $325,000 and IFC to a fine of $600,000, according to the regulator. NPC, SII and IFC also agreed to pay combined restitution of no less than $6 million to their clients, Finra says.