Finra Slams Indiana Independent Firm Over Variable Annuity Practices
January 14, 2019 by AdvisorHub Staff
An Indiana broker-dealer that promotes its commitment to “serving advisers in a Christ-like manner” has agreed to a censure and fine of $125,000 for failing to oversee the suitability of variable annuities sales, which comprise more than 40% of its total revenue.
Kokomo-based CFD Investments, which works with more than 190 independent brokers in about 140 branches, failed to address suitability issues involving the sale of high-fee “L” shares or to train brokers on the incongruities of selling the short-surrender contracts to customers with long-term time horizons or who were sold L shares along with riders that reward longer-term holding, the Financial Industry Regulatory Authority said on its disciplinary actions website on Friday.
Between July 2014 and July 2016, more than 18% of variable annuity sales made by CFD brokers were in L shares with three- to four-year surrender periods that often charge 35-50 basis points more than typical B-share contracts, Finra alleged in an acceptance, waiver and consent letter. A “significant” number were sold with guaranteed minimum income riders often requiring the annuities to be held at least five year to obtain full benefits.
Despite annuities comprising 41% of its sales during the two-year period, CFD had no supervisory system or procedures designed to ensure the suitability of various share classes, according to the consent letter.
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