FINRA Enforcement Proceedings Focus on Variable Annuity Sales
Three recent proceedings reflect the level of attention given by FINRA’s Department of Enforcement to sales of variable annuities to retail customers.
The first of the three proceedings involved a general securities representative who had been registered through Infinity Financial Services and is reflected in a Letter of Acceptance, Waiver and Consent (AWC) accepted by FINRA on April 29, 2025. FINRA alleged that the representative recommended ten unsuitable L-share variable annuity exchanges to nine customers, as well as two unsuitable variable annuity purchases to two customers. The AWC cited FINRA’s general suitability rule, Rule 2111, and noted that, in addition, Rule 2330(b) requires that in making a recommendation concerning a variable annuity a registered representative must have a reasonable basis to believe that the variable annuity as a whole, as well as its underlying subaccounts and any riders, are suitable for the customer. The AWC further noted that these suitability rules apply exchanges of variable annuities and the suitability determination must consider whether, among other things, the customer would incur a surrender charge, be subject to a new surrender period, lose existing benefits, or be subject to increased fees or charges. In accepting and consenting to the AWC, the registered representative did not admit or deny the findings made by FINRA.
The second proceeding involved a general securities representative associated with Northwestern Mutual Investment Services, LLC and is reflected in a Letter of Acceptance, Waiver and Consent accepted by FINRA on May 16, 2025. The registered representative was suspended and fined due to his alleged violations of FINRA Rules 2010 and 2330 by recommending purchases of variable annuities to three customers without having a reasonable basis to believe that the transactions were suitable based on the customers’ age, financial situation and needs, liquidity needs and investment time horizon, among other factors.
In the third case, an enforcement proceeding brought against PNC Investments LLC (PNCI), FINRA alleged that PNCI violated FINRA rules by failing to establish and maintain a reasonably designed supervisory system for monitoring the extent to which its financial advisors were involved in variable annuity exchanges. Pursuant to a Letter of Acceptance, Waiver and Consent submitted by PNCI, PNCI was censured and fined $200,000. The AWC, accepted by FINRA on June 16, 2025, acknowledged that because variable annuities are complex investments, FINRA requires that firms provide more comprehensive and targeted protection to investors who purchase or exchange variable annuities. Under FINRA Rule 2330(d), the AWC further noted, member firms are required to implement surveillance procedures to determine if any of the firm’s associated persons have rates of effecting deferred variable annuity exchanges that raise for review whether such rates evidence conduct in violation of FINRA rules. As alleged by FINRA’s Department of Enforcement, PNCI’s supervisory system was deficient for failing to assess its representatives’ rates of variable annuity exchanges and, in appropriate circumstances, to review whether the exchange rates of certain representatives reflected a violation of FINRA rules. In accepting and consenting to the AWC, PNCI did not admit or deny the findings made by FINRA.