Ameritas Investment Corp., a brokerage firm headquartered in Lincoln, Nebraska, has been censured and fined $180,000.00 by Financial Industry Regulatory Authority (FINRA) based upon allegations that the firm failed to supervise variable annuity transactions containing multiple share classes, and failed to supervise the firm’s charging of commissions to customers. Letter of Acceptance, Waiver and Consent, No. 2015043583901 (Nov. 8, 2017).
According to the AWC, from September of 2013 to July of 2015, a total of 4,075 variable annuity contracts had been sold to customers, enabling the firm to generate revenues totaling at least $58,000,000.00. Of the 4,075 variable annuity contracts sold, 697 of them, totaling seventeen percent of the overall sales, consisted of L-share contracts. Apparently, B-share variable annuity contracts, which contained surrender penalty periods of seven years, were the most typical share class sold to investors. The L-share contracts contained shorter surrender penalties of approximately three years, but carried higher costs than B-shares considering the shorter commitment period.
The AWC stated that the firm failed to create written supervisory procedures and supervision systems that were adequately geared to ensure multi-share class variable annuities were suitable for customers. Particularly, the written supervisory procedures did not adequately guide registered representatives and principals regarding determinations of suitability for customers based on the type of annuity share class. The firm reportedly failed to provide registered representatives and principals with information about the share class features, surrender penalties, or any adequate information so that comparisons could be made for suitability.
The AWC also stated that the registered representatives and principals were deprived of information to help guide them determine suitability of L-share contracts containing long-term income riders. FINRA found that the firm’s supervisory failures were violative of FINRA Rules 2010, 3110, and 2330(d).
The AWC additionally stated that the firm failed to address whether commissions it charged were reasonable considering factors such as the characteristics of the firm’s business; customer disclosures; the security’s price; the availability within the market for the security; the total amount of money used in each transaction; and the security’s type.
Particularly, the firm’s commission structure had defaulted to a flat four percent for equity transactions. Evidently, the firm neglected to adequately supervise the commissions charged at that rate by the firm’s stockbrokers to identify if they were fair and reasonable. Consequently, the firm’s conduct was found by FINRA to be violative of FINRA Rules 2010 and 3110.
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