Variable annuities can provide investors with many benefits, including tax-deferred growth, guaranteed lifetime income and exemption from probate. However, these products have often been misused by advisors and misunderstood by investors.


The Financial Industry Regulatory Authority (FINRA) recently handed out fines totaling $6.2 million to eight broker-dealers and has also ordered five more firms to pay $6.3 million in restitution to clients because they were sold variable annuities that FINRA considered to be “unsuitable.” The firms that received fines include Voya Financial Advisors, five broker-dealer subsidiaries of Cetera Financial Group, Kestra Investment Services and FTB Advisors Inc. Voya and four of the Cetera subsidiaries are also required to pay restitution to their clients. (For more, see: Variable Annuities: The Pros and Cons.)

Voya must pay about $1.8 million, while the other firms will pay a combined total of about $4.5 million. These companies agreed to the settlement without confirming or denying the charges that the agency brought against them. A Voya spokesperson commented on the matter to Investment News. "We are pleased that this matter has been resolved. At Voya, we are committed to providing clear and comprehensive information to our clients – including details on fees, expenses and costs associated with their investments. We support transparency and candid disclosures and continually seek to enhance our policies and procedures on an on-going basis to better serve our customers."

Joseph Kuo, spokesman for Cetera Financial Group, made a similar comment. “We are pleased to have reached an agreement with FINRA and put these matters behind us.” Neither Kestra nor FTB Advisors were available for comment.


The variable annuity product in question is an L-share product that contained what FINRA labeled as “potentially incompatible, complex and expensive long-term minimum-income and withdrawal riders.” FINRA said that the use of this annuity product had the potential to “pay greater compensation to the firms and registered representatives than more traditional share classes.” (For more, see: Advising FAs: Explaining Annuities to a Client.)

FINRA also stated that this L-share annuity product was frequently paired up with complex withdrawal riders that could only justify their cost over long periods of time. But the firms that were fined were recommending this product to clients whose investment objectives and time horizon could have been better served with other alternatives. FINRA stated that these firms had failed to adequately train their advisors regarding the type of client for whom this product was appropriate.

It said in its action notice that these firms should have seen the “red flags” that the product carried and been more careful in their marketing efforts. Brad Bennett, FINRA’s executive vice president and chief of enforcement, told Investment News that, "When a firm cannot explain why a significant number of clients are paying up for the short-term flexibility of L-shares while at the same time buying riders that only have value over the long term, it is clear that these supervisory obligations are not being met.” (For related reading, see: How to Stay in Compliance with L Shares.)

This latest enforcement action comes in the wake of similar action that was taken by the agency against MetLife, when it fined the company $20 million for failing to adequately monitor how its advisors were switching clients between variable annuity products. It also had to pay clients restitution of $5 million.

The Bottom Line

Although variable annuity products can provide clients with a unique package of benefits in a single vehicle, they can also be easily misused and many advisors are motivated to sell them because they pay high commissions. Advisory firms need to carefully monitor their use of these products in order to ensure that they are used correctly and meet the client’s needs and objectives. (For more, see: Annuities and Baby Boomers: The Pros and Cons.)