Hornor, Townsend & Kent, Inc., a brokerage firm headquartered in Horsham, Pennsylvania, has been censured and fined $275,000.00 by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it failed to supervise private securities transactions and variable annuity share class recommendations. Letter of Acceptance, Waiver and Consent, No. 2015043387001 (Nov. 14, 2017).
According to the AWC, between April of 2013 and June of 2015, Hornor, Townsend & Kent effected sales of 15,815 variable annuities, where 7,398 of those sales pertained to L-share contracts. The AWC stated that supervisory procedures and systems had not been implemented by the firm in a manner which could confirm sales of L-share contracts, among other share classes of variable annuity contracts, were suitable for customers.
Evidently, the variable annuity contracts which Hornor, Townsend & Kent sold contained L-share and B-share contracts. The AWC stated that B-share contracts often contained a seven-year surrender period, whereas L-share contracts contained three-year or four-year surrender periods. The AWC revealed that the increased liquidity provided to customers within L-shares necessitated fees that exceeded B-share contracts by thirty-five to fifty basis points.
Apparently, the firm’s written supervisory procedures neglected to provide the firm’s registered representatives with appropriate information relating to the suitability of the multi-share classes of variable annuities. Hornor, Townsend & Kent reportedly failed to train or guide the firm’s registered representatives on the share class features, surrender charges and fees. Moreover, the firm neglected to provide staff with adequate information so that comparisons between share classes could be made to determine suitability.
The AWC stated that the firm additionally failed to create and implement written supervisory procedures to guide principals and registered representatives on the sales of L-share variable annuity contracts containing long-term income rider features. The firm’s supervisory failures were found by FINRA to constitute violations of FINRA Rules 2010, 3110(a), 3110(b), 2330(d), and NASD Rule 3010(a) and 3010(b).
Moreover, FINRA found that the firm failed to provide adequate supervision of private securities transactions. Specifically, the firm was staffed with registered representatives that were also registered as investment advisor representatives with third party investment advisories. However, the firm’s written supervisory procedures failed to address how the transactions with third party advisories that those representatives executed would be supervised. Consequently, the transactions that the representatives effected away from the firm had not been supervised. FINRA found the firm’s failure to supervise private securities transactions to constitute violations of FINRA Rules 2010, 3110(a), 3110(b), as well as NASD Rules 3010(a), 3010(b) and 3040.
FINRA Public Disclosure reveals that the firm has been identified in eight other regulatory actions as well as six disclosed customer initiated investment related arbitration claims were they lost more than $25,000.
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