H. Beck, a Maryland-based broker-dealer firm, has been fined $400,000 by the Financial Industry Regulatory Authority (FINRA) in connection to allegedly unsuitable variable annuity recommendations resulting from the firm’s failure to enforce supervisory guidelines, according to an Investment News report published on November 21, 2018.
FINRA found that H. Beck sold its customers more than 7,000 variable annuity contracts between January 2013 and December 2014, for total revenue almost $35 million, according to the report. Of these, about 2,835 contracts were reportedly L-share contracts selling for approximately $13.3 million; a number of the L-share contracts also had long-term riders, and their customers had long-term investment goals.
As the Investment News report notes, variable annuity share classes have varying surrender periods and associated fees. For instance, B-share annuities come with a surrender period of seven years, while L-share annuities have shorter surrender periods, such as three or four years, and also have greater fees—possibly by as much as 35-50 points, according to Investment News. In other words, L-share contracts with high fees, short terms, and long-term riders may be unsuitable for some investors.
FINRA’s findings in this matter stated that H. Beck’s failure to establish and maintain adequate supervisory procedures regarding suitability of different variable annuity classes resulted in H. Beck’s failure to properly determine the suitability of the annuity contracts it sold its customers, specifically with regard to their associated fees and surrender periods. FINRA also stated that H. Beck did not adequately train its representatives regarding variable annuity contracts and how to determine their suitability for customers.
According to the firm’s BrokerCheck report, it has received 17 regulatory sanctions in connection to alleged rule violations. In December 2017, for instance, the Maine Office of Securities sanctioned the firm in connection to allegations that through a branch supervisor it “failed to protect the security and confidentiality of non-public personal information.” In that action, the firm was issued a fine of $10,000.
In 2017 FINRA sanctioned the firm in connection to allegations that through a registered representative it recommended unsuitable investments in more than $2.3 million in non-traditional exchange traded funds as well as other products. The firm was censured and issued a fine of $50,000.
And in 2015, FINRA sanctioned the firm in connection to allegations it firm failed to enforce supervisory procedures regarding the exercise of due diligence. The firm was censured and issued a fine of $40,000.
In connection with the variable annuity findings, FINRA sanctioned the firm $400,000 and ordered that it undertake a review and revision of its supervisory procedures regarding the relevant products.