An arbitration panel of the Financial Industry Regulatory Authority (“FINRA”) has ordered Morgan Stanley to pay $200,000 plus interest to one if its customers while also rescinding her investment in a variable annuity, with a waiver of any surrender fees.
The panel found that although the Morgan Stanley broker, Helen Holmes Timpe (formerly of the Morgan Stanley branch office in Newport Beach, California) placed the customer in a SunAmerica variable annuity in November 2013, it was not clear that the customer actually authorized the purchase until January 2014. The Panel further found that the claimant was first informed about the fees associated with the annuity via a prospectus after it was too late and the purchase had already been made. Moreover, the claimant alleged that she was promised a six percent rate of return which she did not receive.
This award is the latest example of FINRA’s emphasis on punishing and deterring variable annuity misconduct. Variable annuities are insurance products that are frequently marketed to senior investors as providing a guaranteed income stream, with tax advantages and a death benefit. In reality, however, these benefits are often offset by high commissions and fees, surrender charges, and illiquidity, while the underlying principal is exposed to market risks.
While variable annuities may be a suitable investment for a narrow band of investors with a long investment timeline, who do not have life insurance, and who do not already have tax advantaged investments, variable annuities are too often sold to investors who do not need these features and for whom the products are wholly unsuitable. Brokers are incentivized to sell variable annuities because of the high commissions and fees these products generate.