Brokers International Financial Services, LLC, headquartered in Panora, Iowa, was censured and fined $45,000.00 after consenting to findings that the firm failed to fully inform investors regarding variable annuities prior to investment, and authorized solicitation of purchases of annuities prior to ensuring suitability. Letter of Acceptance, Waiver and Consent, No. 2013038934401 (July 26, 2016).
According to the AWC, in May of 2012, the firm had created a policy pertaining to purchases of variable annuities through the firm, which called for customers to complete a thorough account information form. The AWC stated that the form required a prospective annuity purchaser to acknowledge that the customer comprehended that annuities purchased through funds existing a qualified plan (such as an IRA) did not enable the customer to gain any additional tax deferred benefit.
Additionally, the form apparently called for customers to acknowledge that other features, riders, and benefits serving as the basis for the customers’ purchase of the annuity could result in increased fees and/or expenses and other costs. Finally, the AWC stated that the form called for prospective purchasers to acknowledge that the variable annuities could contain substantial fees (for early termination of the annuity), charges, as well as tax consequences for premature withdrawals.
The AWC further reported that Broker International Financial Services failed to include in such form that there were tax consequences that investors could face by selling their annuity prior to the age of 59 ½, and failed to account for other fees associated with the contract, such as investment advisory charges, mortality and expenses charges, and the features and costs associated with certain riders. The firm’s form apparently did not require representatives (who sold the products to investors) to attest that information was disclosed to prospective customers.
FINRA found that the firm ultimately failed to document that customers were actually informed of material costs and features pertaining to the annuity, and that the firm’s Account Information Form was deficient. The firm reportedly sold 150 variable annuities to customers pursuant to the defective Account Information Form. FINRA found that the firm’s aforementioned conduct was violative of FINRA Rules 2010 and 2330(b).
The AWC further indicated that the firm had failed to take adequate steps to determine whether annuity transactions were suitable for investors prior to approving them. FINRA noted that the firm’s principals could only approve of the annuity transactions recommended for investors after having an adequate basis to conclude that the transactions were suitable – and such conclusion rested upon the customers’ being apprised of the features and costs of the annuities. Given the aforementioned deficiencies in the Account Information Forms, and the firm’s sole reliance on such forms to determine suitability, FINRA found the firm to have violated FINRA Rules 2010 and 2330(c).
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