Florida Firm Hit with Six-Figure Fine for Non-Compliant RILA Recommendations
A Florida-based financial firm, AAG Capital, has been censured and fined by the Financial Industry Regulatory Authority (FINRA) for failing to ensure that hundreds of annuity recommendations made by its representatives were in their clients’ best interest. The firm has agreed to pay $138,591.39 in penalties and restitution.
FINRA found that AAG Capital’s practices surrounding registered index-linked annuities (RILAs) fell short of the Regulation Best Interest standard. Between February 2021 and April 2023, the firm recommended 479 RILA transactions totaling over $92 million in principal. Of these, 41 were funded through the exchange of existing insurance or annuity contracts, totaling more than $7.9 million.
The firm’s written policies and procedures were not adequately designed to ensure compliance with Reg BI, particularly regarding RILAs. FINRA stated that AAG Capital’s system lacked specific instructions for supervisors to assess whether proposed annuity exchanges were in the customer’s best interest. As a result, supervisors were hampered from making informed evaluations, leading to customers losing living or death benefits from their prior contracts or paying surrender charges.
In 19 of the 41 RILA exchanges recommended by AAG Capital’s representatives, customers reportedly lost benefits or paid surrender charges. Six customers exchanged life insurance policies for RILAs and forfeited death benefits valued at over $100,000 more than their contracts’ surrender value. Eight clients incurred surrender charges totaling $38,591.39, which the firm has been ordered to repay with interest.
The fine includes a $100,000 penalty and more than $38,000 in restitution plus interest. AAG Capital must also provide FINRA with a certification from a senior executive within 180 days, affirming that it has implemented a compliant supervisory system. This includes a narrative description and exhibits detailing the corrective measures taken.
RILAs have seen significant growth in popularity, with LIMRA estimating $17.5 billion in first-quarter sales and $65.4 billion in sales for the entire previous year, marking a 38% increase from 2023. The product’s attractiveness lies in its ability to mitigate equity market downturns while allowing companies greater flexibility to hedge against risk.
