ORLANDO, Fla. -- FINRA will be zeroing in on large volume sales of L-shares and variable annuities to clients.
But before firms stop recommending these products, there's nothing wrong with those transactions, per say, FINRA's David Klafter says. The problem comes when clients have not been informed about holding periods and fees, among other risks. And even if clients have been well-educated about their complexities, have those discussions been documented?
"(If those things have been) disclosed to customers, generally speaking, FINRAs not going to be knocking on your door," Klafter, FINRA's regional chief counsel of the self-regulatory organization's south region said.
Klafter, speaking on an enforcement trends panel at the FSI OneVoice conference, explained that the problems come when "there have been instances where firms have a lack of procedures in that particular area, and they also have problematic transactions going on."
FINRA closely scrutinizes these products, according to attorney George Guerra. To protect themselves from censure, Guerra of Wiand Guerra King told conference attendees that firms "should have a mechanism to follow, memorialize and record what it is you're doing. Make sure representatives truly understand these products, whether they are annuities or anything else."
A large number of sales of L-shares and variable annuities will capture FINRA's attention, Klafter said. "Firms that have a high concentration of variable annuity sales… that's one of the parameters we are focusing on as we are evaluating these types of cases."
Earlier in 2016, the SEC also said it would put variable annuities under the microscope. "These new areas of focus are extremely important to investors and financial institutions across the spectrum," SEC Chairwoman Mary Jo White said in January.
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