Brecek & Young Advisors of Folsom, CA, agreed to pay a $125K fine to settle FINRA charges it failed to establish and maintain effective supervision with respect to its variable annuity (VA) transactions.  FINRA found that the firm supervised VA transactions differently, depending on whether the RR was a firm employees or an independent contractor - as follows:

• VA Transactions by RRs Who Were Firm Employees.  Customer VA transactions for registered firm employees were sent to one of the corporate OSJ's for a principal's suitability review before being submitted to the applicable insurance company.  The principal reviewer was required to evidence his or her approval by signing the firm’s VA and switch forms.

• VA Transactions by RRs Who Were Independent Contractors.   Customer VA transactions for registered IC's were sent either to their specified independent contractor OSJ principal, or to a corporate OSJ office location for the suitability review before being submitted to the applicable insurance company.  Similar to the counterparts in corporate OSJs, independent contractor OSJ principals evidenced their approval of the transaction by signing the firm’s VA and switch forms, and retained a copy of the application with supporting documentation. 

    FINRA's Findings.   FINRA found that the firm allowed producing independent contractor OSJ principals to review their own VA transactions and submit the applications directly to the insurance company - prior to sending copies of all of paperwork to the firm’s OSJ supervision manager for his or her review and approval.  That OSJ supervision manager was required to evidence his or her approval of the transaction by signing the firm’s VA and switch forms. 

Some producing independent contractor OSJ principals were found to have self-approved their own VA exchanges, signing as both the RR of record and as the approving OSJ principal.  However, FINRA did not see another signature or electronic stamp evidencing the OSJ supervision manager’s review - and the firm’s blotter identified the RR and supervising principal as the same person for each such transaction. 

FINRA found these WSP deficiencies:

• they failed to adequately guide RRs and supervisors when making suitability determinations regarding VA transactions. 
• they failed to set forth sufficient factors the RRs should consider in recommending a VA exchange, or to provide adequate guidance to the OSJ principal as to the factors to consider when reviewing VA placement transactions for suitability.
• they did not provide specific guidance on suitability of VA replacement transactions - OSJ principals sent customers follow-up letters on their VA exchange transactions that, at times, did not accurately specify the customers’ reasons for their VA exchange.

FINRA further found that, as it pertained to reviews of VA exchange transactions, the firm didn't always enforce OSJ principals to review subaccount allocations of the entering contract to ensure that they met the customers’ investment objectives.  FINRA also found that the firm did not require OSJ principals to conduct a supplemental review of subsequently selected subaccount allocations, nor such reviews were not always conducted.   This is FINRA Case #2008015068501.   [Disciplinary Actions for May 2011]