Cambridge Investment Research was penalized by regulators over violations involving the supervision of annuity exchanges, according to AdvisorHub.
The Financial Industry Regulatory Authority censured the independent broker-dealer and ordered it to pay nearly $280,000.
In a settlement letter, FINRA stated that from 2018 to 2025, Cambridge failed to establish a supervisory system to monitor for variable annuity exchange rates to flag potentially inappropriate recommendations. As a result, it failed to detect a broker who made 22 improper exchanges that incurred around $130,000 in unnecessary surrender charges for 14 customers.
During that period, the firm “had no report, alert, or other system or review that surveilled for its representatives’ deferred variable annuity exchange rates, and Cambridge’s WSPs (written supervisory procedures) did not provide for the assessment of its representatives’ rates of exchange or provide any other procedures to determine if its registered representatives had inappropriate exchanges,” according to FINRA.
Nor did the firm have policies or procedures reasonably designed to implement corrective measures to address inappropriate exchanges.
Cambridge was found to be in violation of several FINRA rules:
FINRA Rule 3110(a) requires each FINRA member to 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.”
FINRA Rule 2330 establishes sales practice standards regarding recommended purchases and exchanges of deferred variable annuities. FINRA Rule 2330(d) provides that, in addition to the general supervisory requirements of FINRA Rule 3110, “a member must establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the standards set forth in [Rule 2330].”
Rule 2330(d) also says members must “implement surveillance procedures to determine if any of the member’s associated persons have rates of effecting deferred variable annuity exchanges that raise for review whether such rates of exchanges evidence conduct inconsistent with the applicable provisions of [Rule 2330], other applicable FINRA rules, or the federal securities laws (‘inappropriate exchanges’)”, and must have “policies and procedures reasonably designed to implement corrective measures to address inappropriate exchanges and the conduct of associated persons who engage in inappropriate exchanges.”
Violations of FINRA Rules 3110 and 2330 also are violations of FINRA Rule 2010, which requires members to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.
The penalty against Cambridge includes a $150,000 fine and almost $130,000 in restitution to customers who incurred unnecessary surrender fees as a result of improper annuity exchanges.
Cambridge accepted the findings without admitting or denying them. A firm spokesperson did not return a request for comment.
In February 2025, Cambridge revised its WSPs, including by implementing procedures and surveillance to review deferred variable annuity exchange rates and enhance supervision of variable annuity surrenders with surrender charges.
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