FINRA ordered Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services to pay more than $2 million to settle charges that the firm failed to adequately supervise recommendations that customers switch from variable annuities (VAs) to investment company products.
According to investigators, Wells Fargo failed to supervise the suitability of brokers' recommendations that customers sell VA products and use the proceeds to purchase different securities, such as class A mutual funds or unit investment trusts (UITs).
The findings state that in failing to account for suitability or lack thereof of the VA switches, customers incurred surrender fees and "substantial" new sales charges.
FINRA found that Wells Fargo's unsuitable and unsupervised switches caused customers to pay nearly $1.5 million in unnecessary surrender fees and upfront sales charges.
In 2018, the Department of Justice ordered Wells Fargo to review its sales practices based on allegations it favored particular products or services in order to earn greater profits or commissions, at the expense of customers' best interests. A lawsuit settled in Northern California around the same time saw Wells Fargo agree to pay $142 million to settle charges of consumer fraud and unjust enrichment.
Unsuitable switches—such as a broker recommending an investor prematurely sell a VA and use the proceeds to purchase a new securities product—can create a situation in which brokers reap the rewards from higher commissions or other incentives associated with the transaction, while customers are left paying excessive sales charges, fees, and other costs, oftentimes for a product that is unsuitable to begin with.
For example, FINRA in 2017 barred Charles Henry Frieda and Charles Bernard Lynch, two brokers from Wells Fargo's Irvine, California branch who unsuitably overconcentrated customer funds in oil and gas securities, resulting in customer losses. A series of complaints and disputes filed against Frieda and Lynch alleged unsuitable and unauthorized trading, misrepresentation, churning, and negligence.
If you have invested with a Wells Fargo broker or investment adviser who unsuitably recommended you sell a variable annuity in order to purchase an unsuitable securities product, exposing you to unwanted and unwarranted sales charges, fees, or commission payments, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.