Royal Alliance Associates Inc. a brokerage firm headquartered in New York New York has been censured and fined $350,000.00 by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it (1) failed to supervise and train its registered representatives regarding their multi-share class variable annuity sales and (2) ineffectively supervised the frequency of variable annuity exchanges executed by the firm’s registered representatives. Letter of Acceptance Waiver and Consent No. 2016047636601 (July 24, 2018).
According to the AWC, from February of 2014 to December of 2015, multiple share classes of variable annuities had been sold by the firm, which included L-share and the most frequently sold share class, B-share. The AWC stated that L-share contracts often carry shorter surrender periods than B-share contracts but contain higher fees than the B-share contracts. L-share contracts have raised concerns from FINRA about suitability given their shorter surrender period possibly conflicting with investors’ plans to set their money aside on a longer-term basis. The suitability risks have apparently become more significant for those investors with shorter investment horizons purchasing L-share contracts along with a guaranteed minimum income benefit rider, as investors purchasing the rider who seek to take full advantage of the rider’s benefits have been typically required to maintain their investment in the annuity for a longer period than the L-share surrender period.
The AWC stated that Royal Alliance failed to create and implement supervision systems and written supervisory procedures adequately geared towards ensuring that its registered representatives had complied with their obligations to have a reasonable basis in concluding that: (1) the annuity and riders were suitable for the customer; (2) the customer would generate some type of benefit through the death benefit, annuitization or tax-deferral features of the annuity; and (3) that the customer was provided information about the features and benefits of the annuities, including being made aware of the mortality and expense charges; surrender charges, and tax liabilities pertaining to annuity liquidations.
The AWC stated that procedures utilized by the firm failed to address suitability issues with fees, costs, and surrender periods pertaining to each of the variable annuity share classes offered by the firm. The firm reportedly failed to manage concerns about suitability when long-term income riders were purchased with an L-share annuity. Moreover, the AWC stated that the firm’s written supervisory procedures were deficient at addressing when principals of the firm should elevate their scrutiny of annuity transactions based on the selection of a particular variable annuity share class.
The AWC additionally stated that Royal Alliance registered representatives and principals were inadequately trained regarding the features of variable annuities. Particularly, trainings were not set up to make sure that those registered representatives and principals comprehended the issues relating to suitability of L-share contracts being sold to investors with long-term investment horizons, or suitability of L-share contracts being sold to investors along with a guaranteed minimum income benefit rider.
Evidently, from February of 2014 to December of 2015, more than $61,900,000.00 in variable annuity sales had been effected by the firm, $15,600,000.00 of which had pertained to L-share variable annuity sales. The AWC stated that L-share contracts accounted for twenty-eight percent of the firm’s variable annuity transactions.
The AWC further indicated that many Royal Alliance customers purchasing L-share contracts had long-term investment time horizons, and a substantial amount of contracts had been sold with guaranteed minimum income benefit riders. Yet, supervisors at the firm did not utilize any procedure to make sure that the L-share contract was suitable for an investor who had either planned to invest on a long-term basis, or who did not need liquidity in the short-term, or who intended to purchase the L-share contract along with the guaranteed minimum income rider. Consequently, FINRA found the firm’s conduct violative of FINRA Rules 2010, 2330(d), 2330(e), 3110 and NASD Rule 3010.
FINRA also cited Royal Alliance for failing to create and implement supervision systems and written supervisory procedures from February of 2014 to March of 2016 for purposes of monitoring the frequency which annuity exchanges were placed. Evidently, the firm only reviewed a small portion of registered representatives’ sales using criteria that bore no relation to the volume of recommendations made by those representatives. Apparently, there were no surveillance measures utilized by the firm for determining if those representatives executed exchanges of variable annuities at troublesome rates. Consequently, the firm’s conduct was found by FINRA to be in violation of FINRA Rules 2010, 2330(d), 3110 and NASD Rule 3010.
The information contained herein has been obtained from reliable sources however may not be accurate and is not guaranteed by us. Readers are encouraged to undertake their own independent investigation and evaluation of the relevant facts. All claims and allegations are subject to adjudication, decisions may be subject to appeal, and no inference is intended, nor should any inference be made from any information contained herein from any source.
This posting and the information on our website is for general information purposes only. This content should be not considered legal advice, and any responses, comments, e-mails, other communications do not form any attorney client relationship. Attorney Advertisement. See Important Disclaimer
Guiliano Law Group
Our practice is limited to the representation of investors. Over the last three decades, we have recovered tens of millions of dollars for more than 1,000 injured investors from all over the United States and from all over the World. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a confidential consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
For more information concerning common claims against stockbrokers and investment professionals, please visit us at securitiesarbitrations.com
To learn more about FINRA Securities Arbitration, and the legal process, please visit us at securitiesarbitrations.com
