Broker-dealers affiliated with Wells Fargo and Washington Mutual, two large banks with close ties to the San Francisco Bay Area, have entered into a settlement with the Financial Industry Regulatory Authority (FINRA) agreeing to pay fines of $275,000 and $250,000, respectively, and consenting to the entry of findings regarding their inadequate supervision of variable annuity, mutual fund and unit investment trust (UIT) transactions with customers. The two bank’s sell securities through Wells Fargo Investments and WM Financial Services, which is now doing business as Chase Investment Services. The other firms sanctioned by FINRA are IFMG Securities, PNC Investments and McDonald Investments (now KeyBanc Capital Markets, Inc.). Collectively, the five firms will pay fines to FINRA totalling $1.65 million.
These firms are referred to as “bank broker dealers” because of their close affiliation with a retail bank. A large percentage of a bank broker dealer’s business comes directly from referrals by employees of the bank. This arrangement can be misleading to bank customers who are often unaware that they have been referred to a stockbroker who often has a desk or office inside the bank branch.
According to FINRA, the sanctioned firms failed to properly supervise the sales practices of their brokers and did not conduct necessary suitability reviews or investigate questionable variable annuity, mutual fund and UIT sales to its customers, many of whom were elderly. The $1.65 million dollar fine was part of a settlement with FINRA in which the firms consent to the entry of FINRA’s findings, but do not actually admit or deny FINRA’s findings. Customers affected by these sales practice violations are not entitled to any restitution as a result of the settlement. In order to recoup any losses, affected customers are advised to consult with a securities lawyer.