FINRA Fines Lincoln Financial for Indirect Payments to Unregistered Entity

Lincoln Financial Distributors Inc., a leading distribution company and part of the Lincoln Financial Group family of companies, has been censured and fined $300,000 by the Financial Industry Regulatory Authority for, according to FINRA, violating rules regarding compensation to unregistered entities.

The alleged violations occurred between March 2018 and September 2019, during which Lincoln indirectly paid approximately $2.9 million in transaction-based compensation to an unregistered entity.

FINRA reports that the unregistered entity, a limited liability company, was not affiliated with Lincoln and was primarily owned by an insurance agent not registered with FINRA. A minority stake in the entity was also held by one of the selling broker-dealer’s registered representatives. Lincoln directed a portion of the transaction-based compensation, totaling $8.7 million, to be paid to this unregistered entity in connection with the sale of variable universal life insurance, a securities product.

Under FINRA Rule 2040, member firms and associated persons are prohibited from paying compensation, directly or indirectly, to any person not registered as a broker-dealer under the Securities Exchange Act of 1934 but who, due to receiving such payments and related activities, is required to be registered. A violation of FINRA Rule 2040 also constitutes a violation of FINRA Rule 2010, which mandates members to uphold high standards of commercial honor and just and equitable principles of trade.

Lincoln accepted FINRA’s findings without admitting or denying them.

Lincoln Financial Distributors markets and sells Lincoln-manufactured variable and fixed annuities, life insurance, and investment management products through financial advisers, financial intermediaries, and sales professionals. It has more than 1,000 registered representatives and eight branch offices.

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