US regulator sanctions Wells Fargo over variable annuity switches
- FINRA said the cost of switching could more than offset the higher returns available on the new investments.
- It said it identified at least 101 potentially unsuitable switches, including a customer who incurred $14,037 in fees.
Wells Fargo & Co agreed to pay $2.12 million in fines and restitution to settle US regulatory charges its brokers failed to properly account for the costs of switching customers who owned variable annuities to new investments.
The Financial Industry Regulatory Authority (FINRA) said Wells Fargo failed to supervise the suitability of recommendations that customers sell variable annuities carrying "surrender" fees, and use proceeds to buy mutual funds and unit investment trusts carrying upfront sales charges.
FINRA said the cost of switching could more than offset the higher returns available on the new investments, leaving customers with less income than if they had stayed put.
It said it identified at least 101 potentially unsuitable switches, including a customer who incurred $14,037 in fees and charges when surrendering a $180,500 annuity.
The payout by Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network includes $1.45 million in restitution and $675,000 in civil fines.
Neither entity admitted or denied wrongdoing. Both have taken steps to improve supervision, including developing a "switch alert" for when customers move money.
FINRA said the wrongdoing occurred from January 2011 to August 2016, the month before Wells Fargo became enmeshed in a series of scandals over its treatment of customers, including the opening of accounts without their knowledge.
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