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Indiana Brokerage Fined $125K Over Alleged Annuity Supervision Failures

By Alex Padalka January 15, 2019

Self-regulator Finra has fined an Indiana brokerage $125,000 over alleged failures in supervising its representatives’ sales of variable annuities, the industry organization says.

From July 2014 to July 2016, Kokomo, Ind.-based CFD Investments allegedly failed to have adequate written supervisory procedures to ensure that its representatives complied with laws and regulations pertaining to the sale of the product, according to a letter of acceptance, waiver and consent published by Finra.

CFD allegedly sold variable annuities with the option of B-share contracts, which are the most common type, and L-share contracts, which have relatively short surrender periods of three to four years and generally come with higher fees than the B-share contracts, the regulator says.

During the period in question, the company allegedly didn’t address the suitability concerns of selling L-share contracts with long-term riders to clients with long-term investing horizons, nor the suitability issues related to the differences in fees, costs and surrender periods between the different share classes, according to Finra.

CFD’s written supervisory procedures also allegedly lacked a method to give more scrutiny to certain cases of variable annuity share class selection, the regulator says. The company also allegedly failed to adequately train its representatives and reviewing principals in the features of the product, according to Finra.

CFD, which registered with Finra in 1999, has more than 190 registered representatives working out of 140 branches across the country, the regulator says.

During the two-year period in question, around 41% of the company’s revenue came from the sale of variable annuities, according to Finra. And more than 18% of the 1,574 variable annuity transactions during that time were L-share contracts, with a “significant number” of them being sold with long-term riders, the regulator says. Without admitting or denying Finra’s findings, CFD consented to the fine as well as a censure, according to the letter of acceptance.


Variable annuity sales were on the list of the most common suitability failures in 2018, according to a Finra study released last month, as reported.

In July, the regulator ordered four Advisor Group broker-dealers and another four broker-dealers on the National Planning Holdings network to pay a total of $2.7 million over alleged failures in supervising variable annuity sales, with the two firms each having to pay $600,000 or more in fines.