The Financial Industry Regulatory Authority fined eight firms $6.2 million for failing to supervise variable annuity sales and ordered five of them to pay customers more than $6 million.

In settling the matters, the firms neither admitted nor denied the charges, but consented to the entry of Finra's findings.

Finra fined Voya Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services LLC and FTB Advisors Inc. a total of $6.2 million for failing to supervise sales of variable annuities. Finra also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.

    The firms and their fines include:
    • Voya Financial Advisors Inc., of Des Moines, Iowa, $2.75 million.
    • Cetera Advisor Networks LLC of El Segundo, Calif., $750,000.
    • Cetera Financial Specialists LLC of Schaumburg, Ill., $350,000.
    • First Allied Securities, Inc. of San Diego, Calif., $950,000.
    • Summit Brokerage Services, Inc. of Boca Raton, Fla., $500,000.
    • VSR Financial Services, Inc. of Overland Park, Kan., $400,000.
    • Kestra Investment Services, LLC of Austin, Texas, w$475,000.
    • FTB Advisors, Inc. of Memphis, Tenn., $250,000.

Finra also ordered Voya to pay at least $1.8 million to investors; and Cetera Advisors Networks, First Allied, Summit Brokerage Services and VSR to collectively pay at least $4.5 million to investors.

Finra targeted through its actions L-share VAs, complex investment products combining insurance and security features designed for short-term investors willing to pay higher fees in exchange for shorter surrender periods. L-shares also had the potential to pay greater compensation to the firms and registered representatives than more traditional share classes.

All the firms "lacked an adequate system to supervise variable annuities with multiple share classes, and failed to provide its registered representatives and principals with reasonable guidance regarding the narrow class of customers for whom the costs and features of L-share variable annuities were suitable," Finra maintained in a press release.

Finra added short-surrender L-Shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods.

The regulators also found that Voya and four of the Cetera Group firms failed to identify “red flags” of broad patterns of potentially unsuitable sales.  

“When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met," said Brad Bennett, Finra executive vice president and chief of enforcement.
 

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