Financial Firms Fined Over Variable-Annuity Contracts

Wall Street's self-regulator fined eight financial firms more than $6 million and ordered five of them to return to customers more than $6 million following questionable sales of a type of variable-annuity contract.

Variable annuities are widely used for retirement saving. The contracts at the heart of the Financial Industry Regulatory Authority's action are so-called L-shares, a type of mutual fund shares that are held in variable annuities and are designed for short-term investors, offering shorter surrender periods in exchange for higher fees.

But the L-shares in question, Finra said, often carried income and withdrawal "riders" that provided benefits only if the customer held on to the L-shares.

"When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met," Brad Bennett, Finra's chief of enforcement, said in a press release.

In addition to failing to spot red flags, Finra accused the firms of other oversight breaches.

The firms consented to the censure without admitting wrongdoing.

Voya Financial Inc., the former unit of ING Groep, is to pay $2.75 million, the highest fine, and ordered to pay at least $1.8 million to customers who bought the L-shares. Finra said Voya made more than $198 million, or roughly 25% of its revenue, from the sale of individual variable annuities from July 2012 through August 2014.

Cetera Advisor Networks LLC, First Allied Securities Inc., Summit Brokerage Services Inc. and VSR Financial Services Inc. were ordered to pay a combined minimum of $4.5 million, Finra said Wednesday.

The amounts actually to be paid to customers are yet to be calculated based on information the firms are to submit to Finra.

Write to Maria Armental at [e-mail]

(END) Dow Jones Newswires

November 02, 2016 18:05 ET (22:05 GMT)

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