Wesley Justin Foltz of Alexandria Louisiana a stockbroker formerly employed by Prospera Financial Services Inc. has been fined $7,500.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to findings that Foltz lacked an adequation foundation to conclude that his variable annuity recommendations were suitable for customers. Letter of Acceptance Waiver and Consent No. 2016048637601 (Oct. 5, 2018).
According to the AWC, between April 1, 2013 and February 9, 2016, at least twenty-three customers had been placed in twenty seven Sun America Choice L-share variable annuities. The AWC stated that Foltz additionally advised customers to buy a Sun America Income Plus rider. FINRA stated that despite it being possible for the Sun America Choice L-share variable annuity and Sun America Income Plus rider to be suitable for customers, Foltz lacked the requisite understanding of the products to know whether it was the case. FINRA stated that Foltz sold the customers more expensive annuities and riders without knowing their features, benefits and costs.
FINRA noted that according to Rule 2111, Foltz’s ability to make a suitable recommendation was conditioned on his comprehension of the possible risks and rewards pertaining to the recommendation. Foltz reportedly failed to have that requisite understanding of the risks and rewards.
In particular, there had been no sufficient due diligence undertaken by Foltz to aid him in understanding Sun America L-share variable annuity costs and fees at the time he made those recommendations. Evidently, Foltz could have recommended B-share annuities instead of L-share annuities, where the B-share annuities would have required customers to keep money invested for a seven year period – a longer term than the L-share – but the B-share annuities would have cost the customers thirty-five basis points less than the L-share contracts. Foltz apparently possessed no understanding of the L-share annuities being more expensive than B-share annuities in situations where the customers held the L-share annuities at least six years.
Foltz’s suitability issue was evidently exacerbated by the fact that he combined the Sun America Choice L-share annuity recommendation with a Sun America Income Plus rider recommendation. Particularly, the rider required customers to hold the annuities for a twelve year period without taking withdrawals in order to attain the maximum available income benefits. Evidently, Foltz was incapable of explaining why he advised customers to buy the more expensive L-share annuities, which were designed for investors with short-term investment horizons, along with the riders that required a commitment period that extended beyond that of B-share annuities.
In addition, Foltz reportedly thought that the Sun America Income Plus rider was not available for B-share annuities despite prospectuses, sales literature and other documentation demonstrating that the rider was, indeed, available for B-share annuities. FINRA found Foltz’s failure to understand the features, benefits, charges, expenses and surrender penalties of the products to have precluded him from believing that those products were suitable. Consequently, FINRA found Foltz’s conduct violative of FINRA Rules 2010, 2330(b)(1)(A) and 2111.
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