FINRA L Share Compliance to be a Topic of Discussion at FINRA South Region Compliance Seminar – Mitch Atkins to Present

Mitch Atkins, founder and principal of FirstMark Regulatory Solutions, will present at the FINRA South Region Compliance Seminar in New Orleans, Louisiana on December 2 and 3, 2015. Atkins will present as a panelist on FINRA’s panel entitled, “Variable Annuities: Procedures, Practices and Findings.” The session is offered on both days, and the panelists will discuss FINRA’s expectations of its members in regard to the sale and supervision of variable annuities, and in particular, variable annuity share classes. Atkins will discuss how firms can address sales and supervision of variable annuities, particularly in light of the recent FINRA L share compliance focus in examinations.

Recent FINRA L Share Compliance Issues

In its 2015 Examination Priorities Letter, FINRA announced a focus on the several issues related to variable annuities, including the suitability of 1035 exchanges, suitability of purchase recommendations and that examiners will be focusing on the sale and marketing of “L share” annuities because the shares typically have higher costs. At last year’s South Region Conference, FINRA panelists expressed concern regarding the sale of L shares when the customer’s time horizon was long-term, or when long-term riders are selected along with L shares.

L shares typically have surrender periods of 3 – 5 years compared to a typical B share surrender period of 7 years. However, the L shares have higher ongoing M&E expenses and this charge is generally ongoing, even beyond the surrender period. One concern is that clients holding these L shares may pay substantially higher fees if they are in fact long-term investors in the product. Adequate FINRA L share compliance requires that firms develop supervisory systems, forms and training (for representatives and supervisors) such that the features of the product are adequately addressed in terms of suitability, disclosure and supervision. New product due diligence is a critical gatekeeper function in developing these systems prior to offering a product, or when new share classes or riders are created on an existing product.

During Mr. Atkins’ 20-year career with FINRA (formerly NASD), he was designated as a national regulatory expert in the areas of mutual funds and variable annuities. He founded FirstMark Regulatory Solutions in December of 2013 in Fort Lauderdale, Florida. FirstMark offers a range of compliance consulting services, including AML independent testing, Rule 3120 supervisory controls testing, SRO relationship management, FINRA membership applications, training, development of customized supervisory procedures and more. In 2015, several insurance affiliated broker-dealers announced restrictions on the sale of “L shares” if the annuity contract being sold includes riders.

To register, visit http://www.finra.org/industry/2015-south-region-compliance-seminar

UPDATE: Click for a copy of the session PowerPoint

For further information and to print or view the brochure for the seminar (including the agenda), simply click the image below.