Transamerica Financial Advisors Settled Alleged FINRA Rule Violations Relating to Failed Supervision
Transamerica Financial Advisors (CRD No. 16164 ) recently submitted a letter of acceptance, waiver, and consent to settle an alleged violation of FINRA rules. If agreed to by the regulator, Transamerica Financial Advisors will be formally censured, pay $4.4 million in fines, and pay $4.3 million in restitution. Transamerica Financial Advisors has been a member firm since 1985 and is headquartered in St. Petersburg, FL.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), it is alleged, in part, that the Transamerica Financial Advisors failed to properly supervise the work of its financial advisors. Advisors regularly made unsuitable recommendations to clients regarding the purchase of variable annuities, mutual funds, and 529 plans, and FINRA alleges these actions resulted in “significant customer harm.” Commissions from the sale of variable annuities comprised more than 40% of the company’s total revenue from May 2010 through May 2016. Concerns were also raised that advisors misled customers in discussing the benefits of new annuity products compared to the company’s existing annuity products, leading to potential violations of suitability rules.
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
FINRA has defined the standards in which investment recommendations made by brokerage firms and registered financial advisors are evaluated. The FINRA suitability rule focuses on three fundamental concepts: (1) reasonable basis suitability, (2) quantitative suitability, and (3) customer-specific suitability.
● Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
● Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
● Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, other investments, financial situation and needs, tax status, and investment objectives. Other considerations include the customer’s time horizon, liquidity needs, risk tolerance, and any other information disclosed by the customer.
Failure by a financial advisor to adhere to these requirements is evidence of negligence or, worse, investment fraud. If you as the investor can establish, at a minimum, negligent misconduct, you may be entitled to recover your investment losses.
The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at firstname.lastname@example.org.