Subscribe to our mailing list

* indicates required







We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.


Stay Informed with the latest fanancialish news.




Regulatory Sanctions

FINRA Won’t Let Broker White Out His Errors or Negligence

May 6, 2019

by Howard Haykin



FINRA recently grounded a veteran broker for 3 months (and fined him $10K) for negligently misrepresenting to his customers the investment expenses associated with variable annuity exchanges. Well, to be honest, that was just a part of FINRA charges. (And frankly, the broker should have known better - he had 33 years' experiences in the business.)



WHAT WENT WRONG.    From January to March 2017, a broker with World Equity Group recommended 8 variable annuity (“V/A”) exchange transactions to 5 customers. Unfortunately, on the V/A exchange disclosure forms signed by the customers, the broker negligently misrepresented (i.e., misstated) certain information to the customers - pertaining to fees associated with the new variable annuity and/or the surrendered variable annuity.


       How Did This Happen?    Prior to his in-person meetings with the customers, the broker’s assistant completed several sections of the disclosure forms, in some instances inserting inaccurate information regarding the mortality expenses and administrative fees ("M&E fees") and the Living Benefit Rider fees ("Rider fees") associated with the new variable annuity. Later, during the in-person customer meetings, the broker or his assistant handwrote the M&E fees and Rider fees in different sections of the forms, including on the pages of the disclosure forms containing the side-by-side comparisons of the new and old variable annuities – again, some of it was correct and some of it was incorrect.


Negligence or Carelessness: 

►    Up to now, the broker did not verify either the prefilled information or the handwritten fee information, and did not notice the inaccuracies and internal inconsistencies of the fee information.

►    Based on the comparative fee information as presented, the broker erroneously concluded that the new policy was less expensive that the existing policy.


For 4 of the above exchange transactions, the broker’s direct supervisor noticed the errors or ambiguities on the disclosure forms, and returned the paperwork to the broker for correction. The broker or his assistant whited-out the inaccurate information, wrote the new information over the whited-out sections, and returned the revised forms to the supervisor for his approval (and the supervisor 'obliged').


Violative Conduct: 

►    The broker did not provide the corrected forms to the customers for their approval; nor did he inform them of the changes.

►    The broker failed to maintain the originals, or copies, of the disclosure forms as signed by the customers.



FINRA SANCTIONS.    For negligently misrepresenting the investment expenses and the rationale for the transactions on the V/A exchange disclosure forms signed by the customers, the broker violated FINRA Rule 2010. For altering transaction documents after they were signed by customers, and failing to preserve the documents as signed by the customers, he violated FINRA (Books and Records) Rule 4511.



Financialish has now ‘come full circle’ on this cautionary tale of negligent/careless conduct. In April, we reported on FINRA’s sanctions (fine and suspension) against this broker’s supervisor, who approved the V/A switches even though the customers had not signed (nor were even apprised of) the corrected information on the revised disclosure forms. [See Financialish post, Variable Annuities Supervision: Failing to Go ‘The Whole Nine Yards’]



This case was reported in FINRA Disciplinary Actions for April 2019.

For further details, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017052426602.