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ARTICLE · 15 MAY 2018

Broker-Dealer Pays Fine For Improper Recommendations Regarding Variable Annuity Exchanges

Hogan Lovells Cadwalader
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VAs are considered by FINRA to be complex investments that are frequently marketed and sold to retirees and people saving for retirement.

United StatesCorporate/Commercial Law
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A FINRA member firm agreed to pay a $4 million fine to FINRA, and approximately $2 million in restitution to affected customers, for making unsuitable trading recommendations regarding exchanges of variable annuities ("VAs").

VAs are considered by FINRA to be complex investments that are frequently marketed and sold to retirees and people saving for retirement. The process of exchanging one VA with another requires a comparison of the complex features of each VA. As a result, VA exchanges are subject to FINRA Rule 2330 ("Members' Responsibilities regarding Deferred Variable Annuities") to ensure that brokers have, among other things, a "reasonable basis" to recommend exchanges of VAs, and their supervisors have a "reasonable basis" to approve the transactions.

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