From April 1, 2009 to April 30, 2014, VFA failed to apply volume discounts to certain customers' eligible purchases of non-traded real estate investment trusts (REITs) and business development companies (BDCs) in violation of FINRA Rule 2010. In addition, VFA failed to have in place an effective supervisory system and written supervisory procedures reasonably designed to ensure that its customers received appropriate volume discounts on eligible purchases of non-traded REITs and BDCs in violation of NASD Rule 3010(a) and (b) and FINRA Rule 2010.From May 1, 2009 to April 30, 2014, VFA failed to apply sales charge discounts to certain customers' eligible purchases of unit investment trusts ("UITs") in violation of FINRA Rule 2010. in addition, VFA failed to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that customers received sales charge discounts on all eligible UIT purchases in violation of NASD Rule 3010(a) and (b) and FINRA Rule 2010.
In 2015, Voya executed an AWC (No. 2014042939401), in which FINRA imposed a censure, fine of $325,000, and restitution of $41,853.20. In that matter, Voya failed to apply available sales-charge discounts to transactions in non-traded REITs, business-development companies, and UlTs, and failed to establish and maintain adequate supervisory systems and procedures regarding the same.
Between January 1, 2009, and May 26, 2016 (the "Relevant Period"), Voya disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge ("Eligible Customers"). These Eligible Customers were instead sold Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. During this period, Voya failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that Eligible Customers who purchased mutual fund shares received the benefit of applicable sales charge waivers . . .
In resolving this matter, FINRA has recognized the extraordinary cooperation of Voya for having: (1) initiated, prior to detection or intervention by a regulator, an investigation to identify whether Eligible Customers received sales charge waivers during the relevant period; (2) voluntarily expanded the look back period requested by FINRA to January 1, 2009, or an additional two years, resulting in additional restitution to customers of approximately $125,982; (3) promptly established a plan of remediation for Eligible Customers who did not receive appropriate sales charge waivers; (4) promptly self-reported to FINRA; (5) promptly taken action and remedial steps to correct the violative conduct; and (6) employed subsequent corrective measures, prior to detection or intervention by a regulator, to revise its procedures to avoid recurrence of the misconduct.
In November 2015, Voya began a review to determine whether the Firm provided available sales charge waivers to Eligible Customers. Based on this review, on May 26, 2016, Voya self-reported to FINRA that Eligible Customers had not received available sales charge waivers. FINRA staff requested Voya review the applicable sales in a five-year look back to January 1, 2011. Voya voluntarily expanded the five-year look back an additional two years and reviewed all applicable transactions since January 1, 2009. Voya estimates that, since January 1, 2009, approximately 143 customer accounts purchased mutual fund shares for which an available sales charge waiver was not applied . . .
(1) initiated, prior to detection or intervention by a regulator, an investigation to identify whether Eligible Customers received sales charge waivers during the relevant period; (2) voluntarily expanded the look back period requested by FINRA to January I, 2009, or an additional two years. . .
ln 2015, VOYA executed an AWC (No. 2014042939401), in which FINRA imposed a censure, fine of $325,000, and restitution of$41,853.20. FINRA found that the VFA failed to apply volume and sales-charge discounts 10 transactions in nontraded REITs, business-development companies, and UITs, and failed to establish and maintain adequate supervisory systems and procedures regarding the same
This case concerns VFA's failure to establish, maintain, and enforce a supervisorysystem reasonably designed to identify red flags in the sale of multi-share classvariable annuities ("VAs"). Between July 2012 and August 2014 (the "RelevantPeriod"), VFA earned over $198 million, or approximately 25%, of its revenuefrom the sale of VAs. Approximately $72 million, or 36%, of VFA's VA revenuewas earned from the sale of L-share VAs ("L-share contracts"). L-share contractstypically provide a shorter surrender period, of three to four years, than B-sharecontracts, which typically have a surrender period of 7 years. Insurancecompanies design L-share contracts so that customers pay a higher fee for thebenefit of a shorter surrender period. L-share contracts are designed for investorswith short-term time horizons or who want the optionality of being able tosurrender the L-share contract sooner than a B-share contract. Pursuant to theterms established by the insurance company manufacturers, if a purchaser choosesnot to surrender an L-share contract during the surrender period, the purchasercontinues to pay a higher annual fee for the life of the contract, unless the contractprovides for a "persistency credit."During the Relevant Period, current VFA customers purchased 1,315 L-sharecontracts together with one of two Long-Term Income Riders. The first of these riders. frequently known as the Guaranteed Minimum Income Benefit Rider(GMIB), provides for the added benefit of guaranteed income for life. Thesecond, frequently known as the Guaranteed Minimum Withdrawal Benefit Rider(GMWB), provides for the added benefit of guaranteeing a minimum amount thecustomer will be able to withdraw from the contract over time (the riders arecollectively referred to as the "Long-Term Income Riders"). Long-term incomeriders are designed for investors with long-term time horizons and cost purchasersadditional annual fees in exchange fur the added benefits. Moreover, because ofthe potentially incompatible time horizons, L-shares with Long-Term IncomeRiders may present a red flag that the purchase may not be suitable for acustomer's investment objectives and time horizon.Of the 1,315 L-share contracts with Long-Term Riders VFA sold during theRelevant Period to current customers, approximately 70% of the customers had along-term investment horizon, which should have been a red flag given the short-term nature of L-shares. VFA, however, had no system to review for VA shareclasses and no system for identifying potential patterns of unsuitable sales. VFAalso failed to provide its registered representatives and principals with adequatetraining and guidance on suitability considerations for multi-share class VAs.Even though VAs accounted for more than a quarter of the Firm's revenue duringthe Relevant Period, the Firm failed to establish and maintain an adequatesupervisory system and procedures to ensure suitability of its VA sales and VAshare class recommendations.In addition, during the Relevant Period, VFA failed to reasonably supervise VAexchanges. VFA generated a monthly surveillance report, the "2330 SurveillanceReport," that was intended to monitor for inappropriate rates ofVA exchanges byits registered representatives. VFA, however, failed to establish reasonableparameters for the generation of these reports. As a result, the 2330 SurveillanceReport failed to capture the activity of over 90% ofthe Firm's registeredrepresentatives who recommended multiple exchanges per year. Moreover,during 21 months out of the 22 months ofthe Relevant Period, VFA's principalsfailed to review the 2330 Surveillance Report. . . .
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined eight firms, including VOYA Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services, LLC, and FTB Advisors, Inc., a total of $6.2 million for failing to supervise sales of variable annuities (VAs). FINRA also ordered five of the firms to pay more than $6 million to customers who purchased L-share variable annuities with potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.FINRA imposed sanctions against the following firms.VOYA Financial Advisors Inc., of Des Moines, IA, was fined $2.75 million. . . .. . .FINRA ordered the firms to pay the following to investors.Voya was ordered to pay at least $1.8 million to customers in this category. . . .. . .FINRA found that VOYA and four of the Cetera Group firms failed to identify "red flags" of broad patterns of potentially unsuitable sales of this product combination. . . .
Maybe the good folks at FINRA and Voya need a better understanding of the continuum of time. Maybe they don't quite grasp the difference between "then" and "now," and how the past influences the present and the future. Maybe the regulator and the regulated could have a kumbaya moment and sit down and watch this commercial: