Securities Arbitration Lawyer Blog
FINRA has suspended financial advisor Paul Zakhary (CRD No. 6399894) from the securities industry for three months and fined him $5,000.
FINRA alleged that between January and August 2018, while employed by J.P. Morgan Securities LLC in The Villages, Florida, Mr. Zakhary made unsuitable recommendations to three customers to sell variable annuities and replace them with fixed annuities, in violation of FINRA Rules 2111 and 2010.
Paul Zakhary was a financial advisor at J.P. Morgan Securities LLC from October 2017 until August 2019., working out of the firm’s branch office in Ocala, Florida. J.P. Morgan Securities LLC terminated Mr. Zakhary’s employment for violating the firm’s annuity switch policy related to annuity surrenders and managed brokerage transactions.
Previously, Mr. Zakhary was a financial advisor for Edward Jones in Orlando, Florida, from October 2014 until September 2017.
If you have suffered financial losses investing with Paul Zakhary, or suspect that Mr. Zakhary did not have your best interest in mind when recommending investments, annuities, or annuity switches, contact New York securities arbitration law firm Iorio Altamirano LLP for a free and confidential review of your account or annuity contract.
Iorio Altamirano LLP represents investors that have disputes with their financial advisors or brokerage firms, such as J.P. Morgan Securities and Edward Jones.
FINRA’s Allegations – Paul Zakhary Recommended Unsuitable Exchanges of Annuities
Between January and August 2018, Mr. Zakhary made recommendations to three customers to sell variable annuities and replace them with fixed annuities. Zakhary lacked a reasonable basis for making the recommendations that the customers sell their variable annuities because he did not sufficiently understand the transactions, and as a result, failed to execute 1035 exchanges. Specifically, FINRA alleged:
- Zakhary recommended that three customers liquidate their variable annuities and use the proceeds to purchase fixed annuities.
- Zakhary advised the customers to liquidate their variable annuities directly with the issuing company and assisted them with that process.
- The customers then deposited the proceeds with J.P. Morgan.
- On Mr. Zakhary’s recommendation, each of the customers used the proceeds of their variable annuity liquidations to purchase fixed annuities through J.P. Morgan.
- When he made the recommendations, Mr. Zakhary lacked a reasonable understanding of the variable annuity products.
- Zakhary did not understand or consider the different subaccount investment options available within the variable annuity products before recommending the liquidations.
- Further, he did not understand when and how to execute a 1035 exchange to avoid immediate tax consequences for the customers when liquidating the variable annuities.
- As a result, 1035 exchanges were not used for the customers, and taxes became due on the proceeds immediately, rather than being deferred.
Variable Annuity, Fixed Annuity, and Exchanges
An annuity is a contract between an investor and an insurance company. The insurance company promises to make periodic payments to the investor or a beneficiary designated by the investor. A fixed annuity pays the policyholder a specific, guaranteed interest rate on their contributions to the account. In contrast, the interest paid by a variable annuity can fluctuate based on the performance of an investment portfolio chosen by the account’s owner.
An annuity serves as an investment account that may grow on a tax-deferred basis, includes insurance features, and offers the investor a periodic income payment. Annuities allow customers to choose from a complex array of contract features and investment options, including various share classes and optional riders. Each annuity is unique. The investor pays extra for the features offered by annuities.
Annuities can help investors meet retirement or other long-term goals. However, annuities are not suitable for all investors, especially for investors with short-term needs or objectives. Annuities are complex and can be costly due to fees or taxes and surrender charges that may apply if money is withdrawn early. Annuities also involve investment risks and include contract fees. Accordingly, financial advisors must exercise particular care to ensure that the purchase or exchange of annuity is suitable for a customer before recommending the product to a customer.
FINRA Rule 2111 requires that all investment recommendations be in the best interest of the customer. FINRA Rule 2330 provides investors with additional protections related to annuities. The rule requires that when a financial advisor recommends an exchange of an annuity, the financial advisor must consider whether the customer would incur a surrender charge, be subject to a new surrender period, lose existing benefits (such as death, living, or other contractual benefits), or be subject to increased fees or charges (such as mortality and expense fees, investment advisor fees, or charges for riders and similar product enhancements).
J.P. Morgan Securities LLC – A Duty to Supervise
Financial institutions like J.P. Morgan Securities LLC must properly supervise financial advisors and customer accounts. Brokerage firms must establish and maintain a reasonably designed system to oversee account activity, such as annuity switches, to ensure compliance with securities laws and industry regulations. When a brokerage firm fails to supervise its financial advisors or the investment account activity sufficiently, it may be liable for investment losses sustained by customers.
If you were an investor of Paul Zakhary and have suffered investment losses, or suspect that Mr. Zakhary did not have your best interest in mind when recommending investments, annuities, or annuity switches, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account or annuity contract.
Additionally, if you were a J.P. Morgan Securities LLC customer and have suffered investment losses, or suspect wrongful conduct with respect to annuities, contact Iorio Altamirano LLP today for a free and confidential review of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.