L-Share Violations has 5 Cetera Financial Group Firms Paying Almost $3 Million in Fines

On November, 2016, FINRA announced fines against five (5) Cetera Financial Group brokerage firm subsidiaries in an amount of $2.95 million for supervisory failures related to variable annuity L-shares.

FINRA fined the following Cetera Financial Group-related firms:

• Cetera Advisor Networks LLC (CRD# 13572) of El Segundo, CA, was fined $750,000.
• Cetera Financial Specialists LLC (CRD# 10358) of Schaumburg, IL, was fined $350,000.
• First Allied Securities, Inc. (CRD# 32444) of San Diego, CA, was fined $950,000.
• Summit Brokerage Services, Inc. (CRD# 13475) of Boca Raton, FL, was fined $500,000.
• VSR Financial Services, Inc. (CRD# 14503) of Overland Park, KS, was fined $400,000.

In addition to the fines, FINRA ordered the Cetera-related brokerage firms to pay customers at least $4.5 million in retribution.

L-share variable annuities differentiate from variable annuities in a few distinct ways.  L-share variable annuities have a shorter surrender period than regular variable annuities.  Rather than the typical seven-year surrender period, L-share variable annuities typically have a three-to-four-year surrender period.  In exchange for the decrease in time variable annuity investors have their money tied up, the fees for L-share variable annuities are much higher.

L-share variable annuities, much of the time, are considered shorter term investments than an ordinary variable annuity that carries a longer surrender period.  This fact contributed to FINRA’s reasoning in sanctioning the Cetera firms.

According to the Acceptance, Waiver & Consent (“AWC”) the Cetera-related brokerage firms entered into, FINRA fined the Cetera firms for failing to identify and investigate red flags in customer accounts, such as a customer indicating a long-term investment horizon.

Additionally, according to the AWC, all the Cetera firms failed to implement systems sufficient for reviewing variable annuity classes or to identify possible patterns of unsuitable recommendations.  In a similar vein, the Cetera firms failed to provide their brokers and principals with adequate training and guidance on suitability considerations for the multiple classes of variable annuities, including L-shares.

The sale of the variable annuities, particularly L-shares, composed a significant portion of the Cetera firms’ annual revenues.  In the roughly year-long time frame discussed in the AWC, the Cetera firms collectively amassed close to half a billion dollars on the sales of variable annuities.  Of that revenue, L-shares composed at least 25% of each Cetera firm’s variable annuity revenue.

If you or someone you know has lost money on variable annuities, L-shares, or other variable annuity products investing with any Cetera Financial Group-related brokerage firm, you may be able to recover your lost money. Often times, these products are marketed to elderly, senior retirees which may not be  suitable for those investors, as suggested  by $2.95 million sanction FINRA imposed on the Cetera firm for this very conduct.

Silver Law Group represents the interests of investors who have been the victims of investment fraud.  If you have questions about your legal rights, please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345.