Eight firms agreed to pay $6.2 million in fines to settle FINRA charges that they failed to supervise sales of variable annuities (VAs).  Five of those firms will also pay $6.3 million in restitution to customers who purchased L-share variable annuities (L-VAs) with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.

FINRA imposed sanctions against the following firms.

• VOYA Financial Advisors:  $2.75Mn fine.
• Cetera Advisor Networks :  $750K fine.
• Cetera Financial Specialists:  $350K fine.
• First Allied Securities:  $950K fine.
• Summit Brokerage Services:  $500K fine.
• VSR Financial Services:  $400K fine.
• Kestra Investment Services:  $475K fine.
• FTB Advisors:  $250 fine.

FINRA ordered the following firms to pay restitution to investors.

• VOYA Financial Advisors:  to pay at least $1.8Mn.
• Cetera Advisors Networks, First Allied, Summit Brokerage Services and VSR:  Collectively to pay at least $4.5 million.

The L-VAs at the heart of this action are 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 reps than more traditional share classes. Each of the firms in this action lacked an adequate system to supervise VAs with multiple share classes, and failed to provide its registered reps and principals with reasonable guidance regarding the narrow class of customers for whom the costs and features of L-share Vas were suitable.

These failures were compounded by the fact that the short-surrender L-Shares were often sold with complex and expensive guaranteed income and withdrawal riders that provided benefits only over longer holding periods.