FTB Advisors, Inc., a broker-dealer headquartered in Memphis, Tennessee, was censured and fined $250,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm failed to supervise its variable annuity sales. Letter of Acceptance, Waiver and Consent, No. 2015043292101 (Nov. 2, 2016).
According to the AWC, the firm failed to supervise recommendations made to customers by the firm’s registered representatives regarding multiple share classes of variable annuities, and failed to effectuate reasonable training measures for principles and registered representative concerning supervision and sales of variable annuities with multiple share classes.
The AWC revealed that from January of 2013 to December of 2014, the firm accumulated at least $27,000,000.00 in principal payments from customers. Apparently, $5,000,000.00 of the principal payments were associated with L share contracts sold by the firm. The AWC stated that L shares subjected investors to shorter surrender periods and were geared for investors with short term investment horizons.
The AWC conveyed that L share contracts were different than other share classes of variable annuities sold by the firm in that investors were required to pay higher up-front fees ranging from thirty-five to fifty basis points more than B share contracts in order to be subject to a shorter commitment period than the firm’s B shares.
FINRA found that the firm did not properly create and maintain supervisory protocols and systems associated with these multiple share classes of variable annuities sold by the firm. Principals and registered representatives reportedly failed to receive training on these products, particularly how to ascertain suitability based upon different share classes, as well as features, penalties, and various fees.
The firm reportedly failed to impose written procedures regarding the adequate training on the L share classes. Collectively, this lack of training apparently led principals and registered representatives to fail to reasonably address suitability concerns regarding the different classes of shares.
Further, the AWC stated that the firm did not adequately address the L share suitability as part of the firm’s overall variable annuity suitability analysis, namely in cases where investors with longer term investment horizons had been positioned products such as income riders (which offer future guaranteed income) while also having been positioned L shares. Because of this inconsistency, FINRA found that the firm should have taken more steps to ensure that products were suitable for prospective investors.
Customers of the firm, per the AWC, were deprived of the ability to compare the products based on surrender penalties and fees pertaining to the L share class. As such, FINRA found that FTB Advisors’ conduct was violative of NASD Rule 3010(a) and 3010(b), as well as FINRA Rules 2010, Rules 2330(d), 2330(e), 3110(a) and 3110(b).
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