The Financial Industry Regulatory Authority has fined Woodbury Financial Services, an independent broker-dealer in the Advisor Group network, for not having a system in place for supervising additions to existing variable annuities in order to achieve compliance with securities laws and FINRA rules, including those governing suitability.
Headquartered in Oakdale, Minnesota, Woodbury has been a FINRA-regulated firm since May 1968 and has 2,096 registered representatives in 1,171 branch offices. The firm has no relevant disciplinary history.
From June 2013 until June 2015, FINRA claims that Woodbury’s system was not reasonably designed to achieve compliance and affected more than 3,800 variable annuity transactions.
During that period, individual Woodbury customers made additional investments of $25,000 or more in existing variable annuity contracts on more than 3,800 occasions. Additional investments funded from the proceeds of an existing variable annuity were approximately 15 percent of these additions.
Variable annuities are generally illiquid long-term investments, and surrender charges may be incurred if a variable annuity is sold before the end of the surrender period.
FINRA noted that considerations relevant to the suitability of a recommendation to invest additional funds in an existing variable annuity contract include the customer’s investment profile, anticipated liquidity needs, and the related risks of the customer’s net worth being overly concentrated in illiquid assets.
According to a letter of acceptance, waiver and consent issued by FINRA, “Woodbury did not review additions resulting from recommendations to invest additional funds in existing variable annuity contracts, either before or after the transaction, unless the addition was funded from the proceeds of an exchange.”
“Woodbury also did not use surveillance tools, such as exception reports, to monitor additions to variable annuities and provide the firm with information about potentially unsuitable transactions,” the regulators added.
Woodbury consented to a censure and $225,000 fine, and accepted and signed FINRA’s AWC letter without admitting or denying the findings.