Philip Norris Smith (also known as Philip Norris Smith), of Woodland Hills, California, a stockbroker registered with Equitable Advisors LLC, has been fined $5,000.00 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Smith made unsuitable investment recommendations to an Equitable Advisors customer in connection with the sale of variable annuities. Letter of Acceptance, Waiver, and Consent No. 2019064218701 (May 31, 2022).
According to the AWC, around April of 2018, Smith and an Equitable Advisors stockbroker (Broker A) suggested that a customer, a trust formed by a married couple for asset distribution, acquire a deferred variable annuity for $540,000.00 and finance it through withdrawals from an indexed annuity that the Trust owned.
Broker A and Smith knew that using the indexed annuity withdrawals for the variable annuity purchase could cause a tax liability for the Trust. They also knew that if the purchase resulted in negative tax consequences, it would not be suitable. However, Smith and Broker A did not review alternative methods for the Trust to acquire the variable annuity without incurring the tax liability.
Instead, Smith advised the Trust to remove funds from the annuity by issuing checks that were payable to the Trust and endorsing them to Equitable Advisors to fund the variable annuity purchase. The trustee of the Trust followed Smith’s advice. Smith believed that endorsing the checks to Equitable Advisors would prevent any tax liability, but he did not verify this belief.
The AWC stated that withdrawals from the annuity, in reality, triggered taxable events and resulted in tax liability for the Trust. Those consequences could have been prevented so long as Smith or Broker A recommended a tax-free 1035 exchange for the new variable annuity, but they did not explore that option.
FINRA stated that Smith’s recommendation was not suitable because he failed to consider the Trust’s tax status and tax ramifications of his advice, leading to an unnecessary tax liability for the Trust in connection with the variable annuity purchase. FINRA found that Smith violated FINRA Rules 2010 and 2111.
FINRA Public Disclosure shows that Smith is referenced in six customer initiated investment related disputes concerning Smith’s conduct while associated with securities broker dealers. On September 20, 2022, a customer filed an investment related complaint involving Smith’s conduct in which the customer requested compensation based upon allegations that Smith made misrepresentations of material fact in connection with the sale of variable annuities during the time that Smith was associated with Equitable Advisors LLC. The securities broker dealer denied the customer’s complaint.
On November 3, 2009, a customer initiated investment related complaint involving Smith’s conduct was settled for $40,341.26 in damages resulting from the lack of payment of a variable annuity death benefit to a beneficiary when Smith was associated with AXA Advisors LLC.
Smith was also referenced in a customer initiated investment related complaint filed on March 25, 2019, in which the customer requested $28,000.00 in damages based upon allegations that Smith withdrew customer funds without authorization. The customer was allegedly led to believe that their life insurance premiums would not increase. The securities broker dealer denied the customer’s complaint.
On September 6, 2019, another customer filed an investment related complaint involving Smith’s conduct in which the customer requested compensation based upon allegations that the customer was not made aware of the benefits and terms of an irrevocable life insurance trust. This complaint was also denied.
Smith is also referenced in a customer initiated investment related FINRA securities arbitration claim in which the customer requested compensation based upon allegations that Smith made unsuitable recommendations of variable annuities and made errors that caused the customer to experience a tax liability. FINRA Arbitration No. 20-03050 (September 10, 2020).
Smith’s stockbroker and investment advisor representative registrations with Equitable Advisors LLC were terminated on December 1, 2021. He was discharged by Equitable Advisors based upon allegations that he made misrepresentations when he was investigated for a customer complaint. He has been registered with OneAmerica Securities Inc. as a stockbroker since December 13, 2022, and as an investment advisor representative since January 4, 2023.
