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FINRA FINES EIGHT FIRMS OVER $6 MILLION FOR ETF SALES

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03
Nov

FINRA FINES EIGHT FIRMS OVER $6 MILLION FOR ETF SALES

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FINRA FINES EIGHT FIRMS OVER $6 MILLION FOR ETF SALES

FINRA Fines Eight Firms over $6 Million for Sales of Multi-Share Class Variable Annuities and ETFs

 

FINRA (the Financial Industry Regulatory Authority) recently brought a regulator action against eight firms for the sales of multi-share class variable annuities.  FINRA brought claims against Voya Financial Advisors (formerly known as ING Financial Partners), Kestra Investment Services (formerly known as NFP Advisor Services), Cetera Advisor Networks, Cetera Financial Specialists, First Allied Securities, Summit Brokerage Services, and VSR Financial Services.

 

Annuity Sales

 

According to FINRA’s allegations, these firms failed to maintain an adequate supervisory system to detect red flags associated with selling multi-share class variable annuities.  These firms were selling L-share annuities, which typically have a shorter surrender period (usually 3 to 4 years) than B-share annuities, which often have 7 year surrender periods.  However, the firms were also selling long-term riders with the L-share annuities, such as the Guaranteed Minimum Income Benefit Rider and the Guaranteed Minimum Withdrawal Benefit Rider.

 

These long-term riders are often utilized by investors with long-term time horizons.  However, the L-share annuities are inconsistent with these long-term riders and should have raised red flags.

 

ETF Sales

 

FINRA also alleged that First Allied Securities failed to adequately supervise the sales of non-traditional ETFs (also called leveraged or inverse ETFs).  ETFs (or Exchange Traded Funds) have become increasingly popular over the last 15 years.  ETFs are typically used to track and replicate the performance of an index, such as the S&P 500, the Russell 2000, or the Dow Jones.  ETFs are popular, because investors can invest in a basket of securities that provides diversification but with the simplicity of being a single stock.

 

In recent years, many companies have also created leveraged or inverse ETFs.  Leveraged ETFs try to replicate the performance of a particular index, but attempt to replicate the performance by doubling or even tripling the index.  As an example, the Proshares Ultra Russell 2000 ETF seeks to double the performance of the Russell 2000 Index.

 

Inverse ETFs also try to replicate the opposite (or even multiple opposites) of a particular index.  For example, Ultrashort QQQ Shares seeks a return of two times the inverse (-2x) of the daily performance of the NASDAQ-100 Index. Leveraged and inverse ETFs can be useful investment tools for investors seeking intra-day trading.

 

However, inverse and leveraged ETFs are often misused, by retail investors and even financial advisors.  The regulators and others have long-warned the securities industry about the dangers of inverse and leveraged ETFs.  These are designed to be day-trading vehicles, but often financial advisors recommend holding these ETFs in an investor’s accounts for weeks or even months.

 

FINRA has stated that “inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”  See FINRA Regulatory Notice 09-31 at page 1.  This Notice reminds members who sell these products to “make every effort to familiarize themselves with each customer’s financial situation, trading experience, and ability to meet the risks involved with such products and to make every effort to make customers aware of the pertinent information regarding the products.”  Id. at 3, citing to NASD Notice To Members 05-26.

 

To settle these allegations, the firms paid the following fines:

 

  1. Voya Financial Advisors (formerly known as ING Financial Partners) – $2,750,000
  2. Kestra Investment Services (formerly known as NFP Advisor Services) – $475,000
  3. Cetera Advisor Networks – $750,000
  4. Cetera Financial Specialists – $350,000
  5. First Allied Securities – $950,000
  6. Summit Brokerage Services – $500,000
  7. VSR Financial Services – $400,000

The firms also agreed to undertake changes to their supervisory procedures to correct these issues.

 

Our attorneys have represented over one thousand investors who have been defrauded by financial advisors and brokerage firms.  While we have offices in Denver and the Seattle area, we have also previously represented clients throughout the country.

 

Click to view:  Voya Financial FINRA AWC

Click to view:  Kestra FINRA AWC

Click to view:  Cetera Firms FINRA AWC

 

If you have lost money with VOYA FINANCIAL ADVISORS (formerly known as ING Financial Partners), KESTRA INVESTMENT SERVICES (formerly known as NFP Advisor Services), CETERA ADVISOR NETWORKS, CETERA FINANCIAL SPECIALISTS, FIRST ALLIED SECURITIES, SUMMIT BROKERAGE SERVICES, or VSR FINANCIAL SERVICES and want to hear about ALL legal options, please visit https://www.israelsneuman.com or call us at 720-599-3505.

 

Israels & Neuman, PLC is a private law firm and is not affiliated with any government or law enforcement agency. Any investigation referenced in this blog is independent in nature and is being conducted by our law firm privately, not in conjunction with any government or law enforcement agency. All information contained in this blog should be deemed statements of opinion derived from the author’s review of public records, not statements of fact. This blog is advertising material and does not create an attorney client relationship, nor does it constitute legal advice. Everyone’s situation is different and the question of whether or not you have a claim will vary on a case-by-case basis. In contingent representation, clients may still be liable for costs.
10.0David P Neuman

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