Ameriprise Financial Services has been penalized for failing to supervise recommendations of certain variable annuity exchanges involving contracts with guaranteed lifetime withdrawal benefit, or GLWB, riders, according to Financial Advisor.
A letter of acceptance, waiver and consent filed by the Financial Industry Regulatory Authority states that Amerirprise agreed to pay a $450,000 fine and nearly $1 million in restitution to settle the allegations.
The order pertains to the period between January 2015 and December 2018. During that time, Ameriprise representatives recommended that certain customers replace their existing annuities with a variable annuity featuring a newer GLWB rider that included an annual growth credit feature. This feature provided that if the customer had not started withdrawals, their benefit base would increase by a minimum guaranteed percentage regardless of market performance. But the newer GLWB riders were generally more expensive than their predecessors.
“Ameriprise failed to establish a system, including written supervisory procedures, reasonably designed to supervise recommendations of certain variable annuity exchanges involving contracts with the newer GLWB riders that included an annual growth credit,” FINRA stated.
The authority added, “Variable annuities are complex, generally long-term investments that offer tax-deferred treatment of earnings and contain securities and insurance features, Ameriprise did not provide sufficient guidance to registered principals for determining whether certain customers would benefit sufficiently from the growth credit before commencing withdrawals to justify the higher fees, which applied for the duration of the contract.”
It was determined that Ameriprise recommended and sold these exchanges to 114 customers who were eligible to commence lifetime withdrawals from their original annuity and either intended to begin or actually began taking income on the new annuity shortly after the exchange. These exchanges cost each customer an average of $8,718.86. Ameriprise failed to reasonably supervise these recommendations, FINRA stated.
Ameriprise was found to have violated FINRA Rules 3110, 2330(c) and (d), and 2010.
Rule 3110(a) provides that members “shall establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
Rule 2330(c) provides that “a registered principal shall review and determine whether he or she approves of the recommended purchase or exchange of [a] deferred variable annuity” and shall approve a transaction “only if he or she has determined that there is a reasonable basis to believe that the transaction would be suitable based on the factors delineated in [FINRA Rule 2330(b)].…” With respect to variable annuity exchanges, FINRA Rule 2330(b) provides that this determination must take into
consideration, among other things, whether the customer would be “subject to increased fees or charges” and whether the “customer would benefit from product enhancements and improvements.”
Rule 2010 requires members, in the conduct of their business, to observe high standards of commercial honor and just and equitable principles of trade.
Ameriprise agreed to a censure and fine along with restitution to be distributed to the 114 affected customers, with individual payments ranging from under $200 to more than $44,000
The Minneapolis-based firm accepted and consented to FINRA’s findings without admitting or denying them.
An Ameriprise spokesperson said the firm was “pleased to have resolved this matter, which involved a very small number of variable annuity transactions from many years ago.”
“Importantly, the settlement did not identify any transactions as unsuitable for our clients,” the spokesperson said. “We remain confident in the strength and effectiveness of our current supervisory program.”
The attorneys at Hyman Cotter include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter at (833) 665-0784 or through our online contact form.
