FINRA: Adviser pocketed $60K from 'unsuitable' annuity replacements
An adviser whose former clients have won nearly a half-million dollars in settlements was charged by FINRA with unsuitable advice, misrepresentation and falsification of records.
Walter J. Marino collected over $60,000 in commissions after saddling two clients with higher fees and tax losses while lying to his employer and an annuity provider, according to a complaint issued last week by the regulator.
Past clients of Marino, who previously worked for several firms including Lincoln Investment, have received $494,000 in nine different settlements since 1996. He was working for a Palm Beach Gardens, Florida-based broker-dealer and RIA named Legend Equities in 2014, the time of the transactions investigated by FINRA.
FINRA has warned investors about the risks of annuity exchanges since at least 2006, and the regulator has been active in enforcement in the past year, assessing a record $176 million in fines. Meanwhile, client arbitration claims involving all kinds of annuities grew by nearly 31% in 2016.
Marino recommended that two clients purchase variable annuity replacements in 2014 despite one client’s 20% returns after two years and the other client’s 69% returns over five years, investigators said. Then he concealed the fact that both transactions were exchanges, according to FINRA.
Legend Equities fired Marino from its Bohemia, New York, location the following year, according to FINRA BrokerCheck. Three other former clients of Marino’s at the firm are seeking more than $373,000 in separate unresolved filings.
HARMING THE CLIENTS
In the case discussed in the complaint, investigators say Marino victimized a retired widow, then 78, and a married couple with three children. He steered them into “unsuitable annuity replacements that benefitted him but caused substantial financial harm to his customers,” according to the complaint.
Efforts to reach Marino, who has worked at 14 different firms during his 22 years in the industry, were not successful. He denied the allegations when Legend terminated him in 2015, with the company alleging he represented a replacement variable annuity purchase as a non-replacement.
“I am denying the claim of being discharged due to violating the firm’s replacement policy,” Marino said in response to his firing, according to BrokerCheck. “I am not aware of any violation and don't have any details regarding any replacement violation procedures.”
The first client, a former high school teacher living in Florida, initially invested about $1.1 million into a Jackson National Life Insurance annuity in August 2012. The couple, a 54-year-old teacher and a 55-year-old construction worker, had invested almost $147,000 into the same type of annuity in May 2009.
The widow’s investment yielded profits of more than $214,000, and the couple took in profits of $101,000, according to FINRA investigators. Marino convinced them to replace their annuities with ones offered by the Variable Annuity Life Insurance Company in May and June 2014, investigators say.
Marino secured himself commissions on both replacements, according to the regulator. He also added new advisory fees to his pocket by having the two clients open new accounts with Legend in order to manage subaccounts for the VALIC annuities, the regulator says.
Both clients earned profits by surrendering their existing annuity accounts to buy the replacements, but their returns were exposed to taxes because Marino did not make the transactions as tax-exempt 1035 exchanges, according to FINRA.
VALIC’s annuity carried annual mortality, expense and administrative fees ranging from 1.6% to 2.1%, more than 30 basis points higher than the previous contracts, investigators say. The widow also had to pay an $82,000 surrender charge Marino didn’t disclose to her, according to investigators.
Marino then misled VALIC and Legend “to evade the supervisory scrutiny associated with variable annuity replacements,” the complaint shows. He claimed that the purchase was not a replacement, omitting mention of the surrenders when asked for the source of the funds, according to investigators.
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LONG DISCLOSURE RECORD
Legend, which Lincoln Investment’s parent firm acquired from a Cetera affiliate in September, fired Marino in July 2015.
A spokeswoman for Legend declined to discuss the case. Representatives for VALIC, a subsidiary of AIG, did not respond to requests for comment.
The previous settlements involving Marino largely stemmed from complaints about misrepresentation and excessive commissions. He denied those allegations in the three other pending arbitration cases. Another prior employer fired him in 2001 after a client accused him of unauthorized trading.
FINRA requested in the April 24 complaint against Marino that a disciplinary panel require him to disgorge his commissions from the purchases, plus interest. The regulator alerted investors back in 2006 to the dangers of replacement annuities following a spike in sales through 1035 exchanges.
“You should exchange your annuity only when you determine, after knowing all the facts, that it is better for you and not just better for the person who is trying to sell the new contract to you,” according to FINRA.
Marino worked for three more firms, including Lincoln, for less than a month each after Legend fired him.
Lincoln terminated him on Oct. 20, saying Marino had recommended that a client surrender an annuity without making the client aware of the surrender fees, according to BrokerCheck. The firm stopped the transaction and reinstated the client’s previous annuity contract.
Marino had been “on heightened supervision at Lincoln due to his termination from his prior firm for annuity-related violations of firm policy,” according to a disclosure on his BrokerCheck entry.
Marino’s most recent employer, Benjamin Securities, parted ways with Marino in December when company executives found out about Marino’s history, according to Bill Baker, the firm’s president.
“He had never done any business at the firm,” Baker says. “He just said he was looking for a change. He didn’t say why he was looking for a change. Obviously, I found out pretty quickly.”