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FINRA Focused on Broker-Dealers’ Increased Equity Indexed Annuity Sales

InvestmentNews reports broker-dealers are leading the pack in the world of equity indexed annuities, with sales reaching more than $38 billion in 2013, up over 13% from a little over $34 billion in 2012. Most of that growth is attributable to sales activity at large regional firms. At LPL Financial, the largest independent broker-dealer with 13,600 affiliated reps and advisers, sales of fixed annuities and equity indexed annuities have surged in the first quarter of 2014. Sales of variable annuities at the firm, meanwhile, decreased approximately 2% in the first quarter, down to about $198 million.

With broker-dealers selling a bigger share of equity indexed annuities, securities regulators are taking a closer look at policies and procedures governing exchanging or giving up variable annuities in order to put those assets into an equity indexed annuity. For example, the Financial Industry Regulatory Authority (FINRA) has closely examined a number of firms’ policies and procedures related to exchanges into equity indexed or fixed annuities from variable annuities. Such variable annuity exchanges are known as “1035 Exchanges” because they fall under section 1035 of the Internal Revenue Code. FINRA plans to take action if the reason for a 1035 exchange was misrepresented. For example, if a rep told a client that fees would be lower in the new product but are actually higher.

FINRA released Notice-to-Members 05-50, an August 2005 memo reminding broker-dealers of their supervisory duties with respect to equity indexed annuities. In addition, the memo was intended to push firms to adopt procedures to adequately oversee that business. However, procedures on overseeing equity indexed annuity business can vary from one firm to another, and financial advisors or registered representatives “exchanging” clients’ variable annuities is a relentless compliance issue that broker-dealers face.

In order to protect investors from such misconduct, FINRA rules require broker-dealers to establish and implement a reasonable supervisory system. These rules requires supervisors to monitor employees to ensure they comply with federal and state securities laws, securities industry rules and regulations, as well as the brokerage firm’s own policies and procedures. If broker-dealers do not establish and implement these protective measures, they may be liable to account holders for losses flowing from the misconduct. As a result, annuity investors who have suffered losses stemming from their stockbroker’s unsuitable recommendations and/or misrepresentations can bring forth claims to recover damages against broker-dealers like LPL Financial, which have a duty to supervise its employees in order to prevent these types of stockbroker misconduct.

Have you suffered losses in an equity indexed annuity due to your broker’s unsuitable recommendation and/or misrepresentations? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against financial professionals for unsuitable recommendations, mismanagement of accounts and/or other unauthorized and illegal conduct.

The most important of investors’ rights is the right to be informed! This Investors’ Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over , Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities, and investment law issues. The lawyers at our law firm are devoted to protecting investors’ rights throughout the United States and internationally! Please post a comment, call (800) 732-2889, send Mr. Pearce an email at pearce@rwpearce.com, and/or visit our website at www.secatty.com for answers to any of your questions about this blog post and/or any related matter.