FINRA Fines AAG Capital for RILA Exchange Violations
From the desk of Jim Eccleston at Eccleston Law
The Financial Industry Regulatory Authority (“FINRA”) has fined AAG Capital $100,000 and ordered the firm to pay nearly $39,000 in restitution after finding it violated Regulation Best Interest (“Reg BI”) by recommending costly registered index-linked annuities (“RILAs") to retail clients in unsuitable product exchanges.
According to a FINRA Acceptance, Waiver and Consent letter (“AWC”), from February 2021 through the present, AAG Capital lacked adequate written policies, procedures, and supervisory systems to ensure its RILA recommendations complied with Reg BI. During this period, the firm’s annuity business exclusively involved RILAs from three issuers, which represented a major component of the firm’s revenue.
ThinkAdvisor reports that FINRA noted that AAG Capital’s supervisory framework failed to properly consider the disadvantages associated with replacing customers’ existing insurance policies, fixed indexed annuities, and variable annuities with RILAs. Specifically, the firm did not sufficiently evaluate the impact of surrender charges or the forfeiture of valuable benefits like death and living benefit riders.
The order highlights that of 41 reviewed exchanges:
- Six customers surrendered life insurance policies where the death benefit exceeded the contract’s surrender value, in some cases by over $100,000.
- Fifteen clients gave up annuities with valuable optional benefit riders.
- Eight customers incurred surrender charges totaling $38,591.39.
RILAs are annuity products tied to market index performance, offering a mix of downside protection and capped growth potential within a structured term. ThinkAdvisor reports that, despite the complexity of RILAs, AAG Capital failed to establish procedures outlining how supervisors should assess whether these recommendations aligned with a client’s investment profile and financial interests.
Between February 2021 and April 2023, AAG Capital recommended 479 RILApurchases, totaling over $92 million in principle, with 41 of those transactions involving exchanges funded by surrendering other insurance or annuity products, as reflected in the AWC.
Without admitting or denying FINRA’s findings, AAG Capital accepted the sanctions, agreed to undertake corrective actions, and consented to the entry of the findings.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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