The State of Illinois Securities Department (“Department”) recently initiated enforcement proceedings against Thrivent Investment Management, Inc. (“Thrivent”) (CRD #18387) for allegedly violating the Illinois Securities Law of 1953 in connection with sales of unsuitable variable annuity (“VA”) products to certain of its clients who already held Thrivent VA’s.
Specifically, the Department alleges that Thrivent violated the Act by “… replacing its clients’ existing variable annuities for new variable annuities which required the clients to pay surrender charges and various fees.” According to the Department, possible violations of law in the case include (i) failure to maintain and enforce a supervisory system with adequate written procedures to achieve compliance with applicable securities laws and regulations, (ii) failure to adequately review the sales and replacements of VA’s for suitability, (iii) failure to enforce its written procedures regarding documentation of sales and replacements of VA’s, and (iv) failure to adequately train its salespersons, registered representatives and principals.
Prior to 2012, Thrivent rolled out a new feature to its VA. This feature consisted of adding a Guaranteed Lifetime Withdrawal Benefit (“GLWB”) to the VA in return for a rider fee. During the time period of January 2011 – June 2012 and July 2013 – June 2014, Thrivent allegedly recommended that certain customers purchase new variable annuities with GLWB riders to replace existing variable annuities, without performing any analysis of whether the customers would economically benefit from the variable annuity switch. Some customers who were advised to switch allegedly would have received greater payments over the life of the policies if they had kept their original variable annuities in place.
In general, VA products have a checkered history with regulators. Both the Financial Industry Regulatory Authority (“FINRA”) and the Securities & Exchange Commission (“SEC”) have issued numerous rulings, advisory documents and investor alerts warning that the sale of VA’s might be unsuitable and inappropriate under certain circumstances. Specifically, the SEC has warned about the risks and costs of switching VA contracts, encouraging investors to consider whether they can buy the insurance features embedded in a VA less expensively as part of the VA or separately. FINRA has warned investors that switching, or exchanging, a VA contract is generally not a good idea, due to bonus recapture charges, surrender charges, higher charges accompanying the new contract, unnecessary riders on the new contract, and whether the advisor is motivated by commissions.
When a broker or financial advisor recommends that a client purchase or sell a security, the broker must have a reasonable basis for believing that the recommendation is suitable for the investor. In making this assessment, a broker must consider the investors income and net worth, investment objectives, risk tolerance, and other security holdings.
If you received an unsuitable recommendation of securities from a broker or investment adviser, including variable annuities, and suffered significant losses are a result, you may be able to recover your losses in FINRA arbitration. To find out more about your legal rights and options, contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.