More bad news for LPL Financial regarding its oversight of sales of variable annuities — Massachusetts securities regulators said Tuesday that LPL had agreed to reimburse senior citizens $541,000 for surrender charges they paid when they switched variable annuities, marking the second time in four months that the firm has been in state securities regulators' cross hairs over sales and exchanges of variable annuities.
LPL Financial at the end of June was
hit with a $2 million fine and ordered to pay $820,000 in restitution, for failing to maintain adequate books and records documenting variable annuity exchanges, known as 1035 exchanges. The fine and settlement were part of an agreement with the Illinois Securities Department.
At LPL's annual meeting in August, CEO Mark Casady declined to comment further on LPL's settlement with Illinois regarding variable annuities.
(Don't miss: LPL cranks up oversight in response to regulators)
“LPL Financial is pleased to have settled this matter in which we cooperated fully with the Commonwealth of Massachusetts regarding a legacy issue that took place from Jan. 1, 2009, to Dec. 31, 2013,” LPL Financial spokeswoman Amanda Keating wrote in an e-mail.
“LPL Financial has made its compliance and controls one of the firm's top priorities,” Ms. Keating said. “The changes that LPL has implemented to its policies and procedures substantially enhance the supervision of variable annuity exchange transactions. Moreover, these changes are part of a broader effort to bolster the firm's compliance and controls functions.”
The Massachusetts agreement covers 157 transactions, all involving persons 65 or older at the time of the transaction and living in Massachusetts. LPL has 15 days to offer the reimbursement to the senior citizens, according to the statement.
LPL Financial, which is based in Boston and San Diego, has drawn the attention of Massachusetts Secretary of the Commonwealth William Galvin's office in the recent past. In December 2012, Mr. Galvin
sued LPL Financial over the sales practices of its brokers regarding real estate investment trusts. He charged LPL Financial with failure to supervise registered representatives who sold the nontraded REITs under terms that violated both state limitations and the company's rules.
LPL Financial later was one of a half dozen broker-dealers that eventually settled with Mr. Galvin and the Massachusetts Securities Division over the sales practices. LPL agreed to pay $4.8 million in restitution to clients.
In a memorandum of understanding with the Massachusetts Securities Division, LPL Financial “acknowledged that certain annuity switch transactions were conducted in the absence of accurately disclosed surrender charges or in which other determinations were not properly documents,” according to a statement regarding LPL's variable annuity reimbursement from Mr. Galvin.
“During the Securities Division's review of the company's variable annuity switch practices, LPL Financial implemented policies to ensure that customers receive necessary and required disclosure of transactions fees,” according to the statement.
LPL Financial, which has boosted staff and spending on compliance since the beginning of last year, has recently been the focus of regulators for sales of high commission products such as variable annuities and nontraded REITs.
The Financial Industry Regulatory Authority Inc. in March
fined LPL Financial $950,000 for supervisory deficiencies related to sales of a wide range of alternative investment products, including nontraded REITs, oil and gas partnerships, business development companies, hedge funds, managed futures and other illiquid investments.
Alternative investments, including REITs, have concentration limits for investors in their offering documents. Also, some states have imposed concentration limits.
