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FINRA Fines Royal Alliance, FSC, SagePoint Financial, and Woodbury $1 Million for Variable Annuity Supervision Violations

FINRA fined Royal Alliance Associates, FSC Securities Corporation, SagePoint Financial, and Woodbury Financial a total of $1 million for failing to establish and maintain adequate supervisory systems pertaining to the sale of multi-share class variable annuities (VA). The regulator also cited the four firms for failing to adequately train staff to sell and supervise the multi-share class VAs, notably L-share contracts and B-share contracts.

The AWC states that in addition to the multi-share class violations, Royal Alliance Associates specifically failed to implement a supervisory system to determine if any of its representatives had inappropriate rates of variable annuity exchanges.

AWC #2016047636601

The findings state that the firms' supervisory shortcomings encompassed a failure to ensure that each customer or investor had been informed of the various features of the various VA classes, including costs, fees, risks, and benefits that might make a B-share contract more attractive than an L-share contract to customers who prefer to invest and hold securities over a relatively longer period of time.


For instance, according to FINRA, because L-share contracts ordinarily charge higher fees than B-shares, L-shares may not be suitable for customers with long-term time horizons, especially when the unsuitable L-share contracts are combined with long-term riders, such as Guaranteed Minimum Income Benefit (GMIB) or Guaranteed Minimum Withdrawal Benefit (GMWB) riders because GMIB and GMWBs often require investors to hold the VA for five years or longer in order to obtain the full benefit, while L-share contracts themselves have a surrender period less than five years in length.

Investigators found that RAA, FSC, and SagePoint's procedures failed to address this and other suitability concerns relating to L-share contracts, especially regarding investors with long-term investment time horizons, and that Woodbury Financial's written supervisory procedures "failed to address variable annuity share classes at all."

In its decision, FINRA fined the firms a total of $1 million, according to the following schedule:

> Royal Alliance Associates: $350,000 fine.

> FSC Securities Corporation: $200,000 fine.

> SagePoint Financial: $200,000 fine.

> Woodbury Financial: $250,000 fine.

In April 2018, FINRA fined Park Avenue Securities $300,000 for similar variable annuity exchange and multi-share class supervision violations, while FINRA fined Next Financial $750,000 in December 2017 for similar supervisory VA misconduct.

If you have invested with Royal Alliance Associates, FSC Securities Corporation, SagePoint Financial, or Woodbury Financial in variable annuity L-share contracts or a similar product that was unsuitable given your investment objectives and preferences, such as a long-term investment time horizon, that rendered an L-share rider an inappropriate or excessively costly endeavor, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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The Law Offices of Jonathan W. Evans & Associates - California Securities Fraud Attorney
Located at 12711 Ventura Boulevard, Suite #440 Studio City, CA 91604. View Map
Phone: (800) 699-1881 | Local Phone: (818) 760-9880.
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