Bankers Life and Casualty Co. will pay $9.9 million to Maine and several other states in an agreement with securities regulators settling allegations that it participated in brokerage activities without the appropriate licensing.
The case dates back to 2005, when Bankers Life reached an agreement with Uvest Financial Inc. in which agents for the carrier who became registered representatives with Uvest would be allowed to provide advisory and brokerage services out of Bankers Life branches.
Under the agreement with the broker-dealer, Bankers Life participated in a number of securities-related activities, including working with Uvest to determine the compensation paid to the agents and to select the product offerings available to them. The carrier also was responsible for covering agents' training prep for Finra exams and paying for investment research materials in the branch offices.
Bankers Life pocketed 82% to 85% of the commissions Uvest received for the agents' securities activities, according to Maine state regulators, who received cooperation from the North American Securities Administrators Association in investigating the case.
The carrier reached a similar agreement with ProEquities, in which Bankers Life took as much as 91% of the revenue the broker-dealer had made from agents' securities sales.
Between 2005 and 2011, Bankers Life received $21 million from the firms, with $15 million going toward agents' compensation and $6 million going to the carrier, state officials claimed.
Judith Shaw, Maine's securities administrator and the lead regulator on the case, said that her department was tipped off to the situation at Bankers Life after an 82-year-old investor called to complain that a Bankers Life agent had suggested that she liquidate some investments to purchase an annuity.
Though the securities department was able to unwind the transaction, Maine regulators felt Bankers Life warranted a closer look. “When we went to Bankers Life's branch office and looked at ! its brok er-dealer operations, we realized that Bankers Life itself was engaged in unlicensed broker-dealer activity,” Ms. Shaw said.
The settlement also affects Bankers Life's Finra-registered broker-dealer, BLC Financial Services Inc. Although none of the agents involved was registered with it — they were with Uvest or ProEquities — the settlement requires BLC to withdraw its registration with the Securities and Exchange Commission and terminate its relationship with the Financial Industry Regulatory Authority Inc.
Ms. Shaw noted that it isn't unusual for broker-dealers to share office space with non-securities entities or to have insurance producers who are properly licensed for securities transactions.
In this case, however, Bankers Life received a “fair amount” of compensation for undertaking activities that would normally be handled by a broker-dealer, including assuring that agents took the appropriate Finra exams and covering the cost of prep courses, Ms. Shaw said.
“These are activities we'd expect to see from broker-dealers — not an insurer that wants to share commissions on certain sales,” she added.
The carrier also will pay $375,000 to reimburse the states for the cost of the investigation, $260,000 in past licensing and registration fees and $106,000 to cover the cost of state audits. It also agreed to a quiet period ending in March 2015, during which neither it nor BLC will engage in any securities activities.
“This joint investigation … demonstrates the ongoing value of states working together to benefit investors nationwide,” said Jack E. Herstein, NASAA president and assistant director of the Nebraska Department of Banking and Finance.
State securities regulators also reached settlements with Uvest and ProEquities, with the former paying $750,000 and the latter agreeing to a payment of $435,000.
“The recent settlement agreement between NASAA and BLC Financial Services puts another legacy issue behind us,&#! 8221; sa id Bankers Life spokeswoman Barbara Ciesemier. “Bankers branches will continue to serve the needs of the marketplace through ProEquities-registered advisers who are co-located in our branches. The steps taken in this settlement should ensure additional clarity between the roles of agents and financial advisers.”
"Uvest fully cooperated with the NASAA task force and entered into a consent order for the sole purpose of avoiding protracted and expensive proceedings," said Michael Herley, a spokesman for LPL Financial LLC, which now owns the broker-dealer. "Uvest did not admit to any wrongdoing and there was no allegation of sales practice violations or customer harm against Uvest. The company is happy to put the matter to rest.”
“ProEquities fully cooperated with NASAA in its investigation of Bankers Life," said Mike Mungenast, president and CEO of the firm. "We are ready to move ahead and will continue to work with all regulatory bodies with a spirit of compliance for the good of our industry and the investors we serve.”
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