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Monthly Archives: July 2018

FINRA Disciplinary Action Against Royal Alliance Associates, Inc; FSC Securities Corporation; SagePoint Financial, Inc.; and Woodbury Financial Services, Inc.

Posted byDavid Weintraub

On July 24, 2018, FINRA announced that the firms submitted Letters of Acceptance, Waiver and Consent in which Royal Alliance Associates, Inc. was censured and fined $350,000; FSC Securities Corporation was censured and fined $200,000; SagePoint Financial, Inc was censured and fined $200,000.; and Woodbury Financial Services, Inc. was censured and fined $250,000.  Without admitting or denying the allegations, the firms consented to the sanctions and to the entry of findings that during the investigation period the firms failed to establish, maintain and enforce a supervisory system and written procedures designed to reasonably supervise representatives’ sale of multi-share class variable annuities and failed to provide training to their representatives and principals on the sale and supervision of these annuities.   Additionally, Royal Alliance failed to reasonably supervise variable annuity exchanges in that it failed to implement a reasonable supervisory system and procedures to regulate its registered representatives.

According to the findings, the firms’ procedures did not specifically address suitability issues related to the different surrender periods, fees and costs of the different variable annuity share classes; as well as, it did not specifically address the suitability concerns raised by the sale of an L-share contract when combined with a long-term income rider.  The investigation also found that the firms failed to provide adequate training to their registered representatives and reviewing principals to ensure that they understood the material features of variable annuities.   The firms’ training was not designed to ensure that their representatives and reviewing principals understood all suitability considerations.

The investigation revealed that between February 2014 and December 2015, Royal Alliance received over $61.9 million from the sale of variable annuities.  More than 28% of the annuities were L-share contracts.  Between January 2013 and December 2014, FSC received over $51.5 million from the sale of variable annuities; SagePoint received over $52.7 million from the sale of variable annuities; including $11.5 million from the sale of L-share contracts, and Woodbury received over $107.1 million from the sale of variable annuities, including approximately $18.8 million from the sale of L-share contracts.

Questions or comments may be addressed to David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL 33324.  By phone: 954.693.7577 or 800.718.1422.

FINRA Interference with Estate Planning

Posted byDavid Weintraub

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Financial exploitation of the elderly is rampant in the United States.  The elderly are routinely exploited by those close to them, such as family and friends, caregivers, financial advisors, as well as by scammers trying to sell them products they do not need.  These products include elaborate home security systems and other home improvements.

An example of a new type of elder abuse is that which will be the by-product of the Financial Industry Regulatory Authority’s (hereafter “FINRA”) well intended rules designed to curb financial exploitation.  Effective February 2018, FINRA Rule 4512 requires registered representatives to make reasonable efforts to obtain the name of and contact information for a “trusted contact person” (hereafter “TCP”) upon the opening of a retail account, or when updating account information for a retail account.  Pursuant to the Rule, “the member is authorized to contact the trusted contact person and disclose information about the customer’s account to address possible financial exploitation, to confirm the specifics of the customer’s current contact information, health status, or the identity of any legal guardian, executor, trustee or holder of a power of attorney….”  The TCP is intended to be a resource for the FINRA member in administering the customer’s account, protecting assets and responding to possible financial exploitation.  Unfortunately, this Rule will serve to alert nefarious third parties that Aunt Betty or Uncle Bernie had significantly more assets than relatives may have believed.  But for Rule 4512, certain people (the putative “villains”) will be alerted to assets they did not know existed.  Opportunity and motive to steal have been created by this new Rule.  The Rule may also interfere with pre-existing estate plans.

Because FINRA Rule 4512 does not require the customer to identify the TCP, how should we as lawyers advise our clients?  Do we tell them to refuse to identify TCP’s?  Do we encourage clients to identify TCP’s, and if so, do we do it in writing?  Should we explain to our clients the pros and cons of designating TCP’s?  Do we incorporate the TCP concept in estate planning documents?  Do we revise Durable Powers of Attorney to address issues that will arise from a potentially conflicting TCP?  Do we provide copies of Durable Powers of Attorney to financial advisors?  Do we routinely write to financial advisors to find out if our clients have already designated a TCP?  If our clients have designated a TCP, is the TCP consistent with the client’s choice of Estate Executor or trustee?  Do we want to put into place mechanisms that prevent financial advisors from changing TCP’s without attorney involvement?