Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services has agreed to pay over $2 million in restitution to customers, interest and fines, according to FINRA.
The fine comes as FINRA found Wells Fargo committed supervisory violations between 2011 and 2016 when more than 100 customers were recommended to switch from variable annuities to investment company products such as mutual funds and unit investment trusts.
Wells Fargo failed to properly oversee these recommendations even though its company policies mandate that supervisors review the suitability of any switch. Upon review, the supervisory system should have triggered a switch letter to the affected customers, which is another required act. The letters could have helped to confirm customers’ understanding of the switch, according to FINRA. FINRA found both firms did not have a switch alert set up, causing no letters to be created nor sent out.
“Firms must have a reasonable supervisory system in place to detect potentially unsuitable switches. Wells Fargo failed to meet this standard,” said Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement.
Wells Fargo, which neither admitted nor denied the charges, has since developed a switch alert.
Affected customers incurred surrender fees and new sale charges from the product switches, and in some cases have less annual income because they were put in an unsuitable investment product. One customer sold her annuity at a surrender value of $126,681 and then paid a total of $10,601 in surrender fees and upfront sale charges, according to FINRA.