Large BD to Pay $7 Million Because FINRA Believes Equity Mutual Funds Were Unsuitable for Retirees
A large broker-dealer has agreed to pay a $3 Million fine and more than $4.2 Million in restitution for failing to supervise two registered representatives that FINRA alleges made unsuitable recommendations to clients nearing retirement. According to FINRA the Reps promised at least 10% returns without distributions of principal and offered a plan to take distributions from retirement accounts before 59 1/2. According to FINRA, the Reps invested the customers in equity mutual funds “with an unsuitably high concentration in equity funds” and recommended “unsuitable variable annuity transactions.” The activity occurred from 1998-2003. Susan Merrill, FINRA’s Chief of Enforcement, said that “Brokerage firms and brokers who serve investors considering retirement must ensure that their customers are given suitable investment recommendations based upon reasonable assumptions of market performance…”
OUR TAKE: Was it really unsuitable back in 1998 to recommend that near-retirees with a 20+ year time horizon should invest IRA accounts in equity mutual funds and variable annuities? Was it really crazy projecting a 10% return over the long term investing time horizon? What’s the lesson in this action? Don’t make projections and be especially conservative with clients nearing retirement.