SWS Charged with Improper Supervision of VA Transactions

Allowing numerous variable annuity (VA) applications to proceed without being reviewed by a supervisor led the Financial Industry Regulatory Authority Inc., (FINRA) to file charges recently against SWS Financial Services Inc.

FINRA claims sales of these annuities comprised 16 to 20 percent of SWS’ total revenue from September 2009 to May 2011 when the rule violations occurred. The five charges facing SWS include allegations of:

• Inadequate supervisory systems and written supervisory procedures to supervise VA business,

• Inadequate supervisory reviews of VA deals,

• Failure to have registered principal review of VAs before submitting the application to the insurer,

• Failure to have surveillance procedures to detect inappropriate VA exchanges, and

• Failure to develop and document a specific training plan for supervisory review of VA deals.

Disciplinary action FINRA is seeking includes unspecified monetary sanctions and SWS footing the bill for the proceeding.

The SWS offices which generated variable annuity sales without oversight by an onsite supervisor accounted for about 1,300 of more than 1,500 VA transactions executed by SWS’s reps during the relevant period.

Here’s how the process was supposed to work, according to FINRA: Applications are forwarded to SWS’ affiliated insurance agency, where two workers not registered with SWS, review the aps and send them to a manager at SWS’ regional office of supervisory jurisdiction for a final review and approval. Then, the applications are sent to the insurer, where they are processed.

But FINRA claims SWS didn’t follow this unwritten process. Within the period in question, more than 70 percent of the VA business generated at the firm’s offices with no onsite supervisor were sent to insurers without ever having been reviewed by an SWS securities principal.

Did the lack of scrutiny matter? According to the FINRA complaint, in one case, a rep recommended that 29 of his clients exchange variable annuities issued by MassMutual Life Insurance Co. for those from Jackson National Life Insurance Co. because MassMutual would no longer issue certain guaranteed living benefits.

FINRA contends that at least three of the 29 exchanges may have been inappropriate because the clients hadn’t reached the appropriate age of 45 to add the benefits offered.

Located in Logansport, Ind., Starr Austen & Miller LLP has a team of investment fraud lawyers who handle diverse securities fraud cases.

Source: Investment News