NPH’s unfinished business: $7.7M settlement with FINRA

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As National Planning Holdings attempts to close down for good, the IBD network faces some major ongoing legal matters: Its four firms still owe nearly $7.7 million in fines and restitution under a recent settlement with FINRA.

The four NPH firms filed paperwork asking FINRA to terminate their broker-dealer registrations, effective earlier this month. It’s one of the final shutdown steps after LPL purchased the assets of the NPH network last year and completed the acquisition this spring.

Just two weeks after the termination filing’s effective date, though, National Planning, SII Investments, Invest Financial and Investment Centers of America agreed to pay at least $6 million in restitution and $1.7 million in fines. FINRA had accused the firms of supervisory failures in sales of L-share variable annuities by the firm’s advisors between 2013 and 2015.

In a near-identical case also received by FINRA on July 24, the regulator struck a $1 million settlement with four Advisor Group firms involving allegations the firms’ procedures for advisors did not address suitability issues relating to differences in fees and surrender periods between L-shares and other types of VAs.

The regulator’s probe covered more than $705 million in VA sales by the eight firms, including more than 33,000 L-share contracts amounting to more than $163 million. LPL has said it’s not liable for the NPH payouts.

A spokeswoman for former NPH parent Jackson National Life Insurance declined to comment on the status of the payments or the allegations. The companies requested termination of their FINRA registrations effective July 9, according to the firms’ disclosure records on BrokerCheck.

FINRA spokeswoman Michelle Ong noted that the firms remain registered but declined additional comment. Just as in last September after the Massachusetts Securities Division announced a nontraded REIT sales case against SII, LPL spokesman Jeff Mochal said the firm won’t be subject to the payments.

“LPL is not liable for these fines under the terms of our asset-purchase agreement,” Mochal said in an email.

L-share VA contracts offer shorter surrender periods of about three to four years while charging fees roughly 35 to 50 basis points higher than B-shares, the most commonly sold VAs, according to FINRA.

The products may raise suitability concerns if a client has long-term investment horizons, especially when they carry benefit riders obligating the client to hold on to the contract for five years or more, the regulator says.

The NPH firms sold 1,200 L-share contracts with long-term riders over the three-year period, while the Advisor Group firms each sold “a significant number” of contracts with the long-term benefit provisions during the same span, according to investigators.

At NPH, Investment Centers and SII also failed to ensure clients received sales-charge discounts on all eligible purchases of unit investment trusts between 2010 and 2015, investigators say.

The regulator further accused Advisor Group’s largest IBD, Royal Alliance Associates, of inadequate oversight on whether any registered representatives “had inappropriate rates” of VA exchanges from 2014 to 2016.

Representatives for Advisor Group didn’t respond to a request for comment on the allegations.

The IBD network has paid more than $18.1 million in legal expenses since 2016. Advisor Group’s FSC Securities agreed to pay a $5.7 million settlement with Montana regulators earlier this year in connection with a case of a former advisor accused of unsuitable sales and undisclosed outside business.

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Compliance Variable annuities Enforcement actions Independent BDs LPL Financial National Planning Advisor Group Royal Alliance Associates SII Investments FINRA