FINRA Targeting Fixed Annuity Sales' Risks, Firm Policies and Procedures

Attorney Advising Disclaimer

The Financial Industry Regulatory Authority is stepping up scrutiny concerning fixed annuity sales in response to finding that brokerages are growing into the indexed annuities market, representing a 11.4% share of all fixed annuity market sales in 2013, which is a nearly one-third increase from an 8.9% piece of the pie in 2012. Regional firms account for a good portion of this growth.

Total sales of indexed annuities reached $38.6 billion in 2013 alone. For instance, LPL Financial reported $46.7 million in commissions from January through March 2014, which represents a 70.8% increase over the same period in 2013. Variable annuity sales, meanwhile, dropped by 2.1% to $192.2 million.

Indexed annuities have grown attractive for firms looking to advertise the product's living benefits, which are being dropped more frequently by variable annuity-issuing insurance companies.

At the heart of the matter are variable-to-fixed annuity 1035 exchanges (named for the IRS code), which is an area FINRA has "seen some deficiencies in...Not all firms have stepped up to insure that procedures and controls are reasonable."

FINRA is also paying increased attention to the 1035 exchanges for proper disclosures of fees and issues that might arise that increase costs to customers. For instance, failure to disclose surrender or similar fees is FINRA issue of importance.

A key difference between variable annuities, which have historically presented as a staple of many senior investors' portfolios, and fixed annuities is that variable annuities are registered with the Securities and Exchange Commission. Fixed annuity contract, on the other hand, have no such registration requirement.

Procedures on overseeing indexed annuity activity, such as exchanges or conversions, can vary from one firm to the next, which is one reason FINRA is increasing oversight: to remind broker-dealers of their supervisory duties and obligations with respect to the indexed annuities market.

If you have invested with a broker or firm whose recommendations or execution of a 1035 fixed annuity exchange, failure to disclose key fees, costs and commissions or whose supervisory or policy adherence deficiencies have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.

News: Fixed annuity sales receiving added scrutiny from Finra (InvestmentNews)

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