Variable Annuities Strike Again: FINRA Fines Firm for Supervisory Failures and Senator Warren Warns of Kickbacks

FINRA has fined New Jersey’s Comprehensive Asset Management Services, Inc. $475,000 for failing to supervise its employees who sold variable annuities to the firm’s customers. According to FINRA’s Department of Enforcement, the firm failed to carefully look at its customers’ “ages, investment experience and objectives” before permitting its employees to sell them annuities. This kind of lax oversight makes it very likely that the firm—like many others—has sold variable annuities to its customers without even considering whether they are suitable.

The common thread with variable annuities is that while they promise a steady income stream, they do so at a very high cost. The agents recommending the annuities are paid steep up-front commissions, typically much higher than on other investment products that are available to them. There are also exorbitant surrender charges, sometimes upwards of 5 to 7%. Add to that a “mortality and expense fee” that can run 1 to 2% every year, and you can start to feel like you’re in that Seinfeld episode where David Puddy tops off his list of vehicle surcharges with one called “additional overcharge.”

Senator Elizabeth Warren recently issued a report highlighting some of the worst excesses associated with annuity sales. The report details what it calls “perks and kickbacks” paid to salespeople by the annuity issuers. With European vacations, beach getaways, jewelry and golf trips doled out in exchange for strong sales performance, it’s not hard to see how ethical conflicts can arise. It is in that context where the best interests of the customer can take a backseat to the material interests of the sales agents.

I’ve written before about how conflicted advice costs American investors approximately $17 billion per year. In the world of variable annuities, the risk of receiving conflicted advice—and paying a very steep price for following that advice—is real.

If you have been sold a variable annuity and are concerned that it may have been caused by conflicted or unsuitable advice from your financial advisor, please contact a securities attorney at The Galbraith Law Firm. Call 212.203.1249 or email kevin@galbraithlawfirm.com for a free confidential consultation regarding your legal rights.