According to a statement by Tracy Pride Stoneman, the man’s attorney, a RJ branch manager, Paul Davis, recommended that the man and his now deceased wife liquidate their muni bond portfolio and invest instead in variable annuities and life insurance. But the lawyer claims Davis switched them from one VA to another, racking up high surrender fees and commissions, without the client’s knowledge. The firm also made the man’s son the annuitant of the new annuity, not the man, who was 81 years old at the time. What’s wrong with that? Well, commissions for annuitants over 80 years old are 3.25 percent, versus 7.5 percent for annuitants younger than 80.
From Stoneman’s statement:
Stoneman says that if brokerage firms allow such huge financial incentives in commission structure to exist, then they must supervise to a tee any situations that are unusual. Additionally, the churning of variable annuities and life insurance is a big red flag for supervision. Firms need to document the reasons for the activity and contact the client to make sure the client is an agreement with the activity and understands the fees. Raymond James failed to do any of that in this case.
Sadly, these types of things typically come back to bite the broker/dealer, even if the firm had little to do with the broker’s actions. But to quote lyrics from The Osmonds: “One bad apple don’t spoil the whole bunch.”
The news comes just as the SEC and FINRA issued a Risk Alert and a Regulatory Notice this week on broker/dealer branch inspections, and offered suggestions to help firms better supervise. If they want to improve their supervision, b/ds are going to have to bring on more resources to accomplish that, and that means more time and money. Add that to the list…