Annuity Advisor Settles With SEC Over Product Recommendations

The SEC's headquarters in Washington. Credit: Diego M. Radzinschi/ALM

The U.S. Securities and Exchange Commission told an investment advisor that he should have considered fee-based variable annuities along with commission-based variable annuities when making product recommendations.

The SEC said Monday that it has accepted a $1.1 million settlement offer from the advisor, Raymond Lawrence Lent, in connection with concerns about Lent's compensation disclosures for variable annuities and money market funds and concerns about the possible effects of compensation on his annuity recommendations and money market fund selection decisions.

Lent, the founder of Putney Financial, agreed to the settlement without admitting or denying the SEC's findings.

"I'm glad the issue has been resolved satisfactorily," Lent said in an interview. "We cooperated with the SEC from the beginning."

The settlement was the result of concerns that turned up when the SEC conducted a routine cycle exam, and it involved operations that had gone through previous exams without incident, Lent said.

Since 1997, Putnam has been a hybrid practice that has received both commissions and fees, and the cumulative compensation has been well within the norms for comparable services, he added.

Raymond Lent: Lent began as an agent at Mutual Life Insurance Co. of New York and a registered securities sales representative at MONY's securities arm in 1976.

He started Putney, a San Rafael, California-based registered investment advisor, in 1996.

Lent noted in the interview that Putney and its broker-dealer affiliate, Portsmouth Financial Services, have worked with thousands of clients, and that, in some cases, members of four different generations from the same family are doing business with Putney and Portsmouth.

The SEC's views: The SEC examined Putney in September 2019 and also reviewed operations later, according to the SEC order describing the settlement.

The SEC found that, from April 2016 through October 2021, Putney recommended variable annuities that paid Portsmouth upfront sales commissions equal to an average of about 6.8% of the amount invested.

At the time, Lent owned a minority stake in Portsmouth.

As a registered representative of Portsmouth, Lent received about 92% of the commission payments, according to the order.

Lent disclosed the compensation arrangements in the annuity prospectuses, but the SEC had concerns about the adequacy of compensation disclosures, and it said Putney had failed to show that it had analyzed whether recommending a fee-based variable annuity would have been in the advisory clients' best interest.

Lent said in the interview that he agreed with the SEC's findings and had not compared the commission-based annuities with the fee-based annuities because he was used to fee-based annuities not offering extensive access to living benefits riders, and he had not made the necessary inquiries to know about improvements in the riders available with advisor class annuities.

The SEC also found that Putney used a money market fund that made revenue-sharing payments to Portsmouth, an affiliated entity, to hold clients' cash.

Originally, the firm failed to disclose the revenue-sharing payments, and it later gave clients a misleading description of how it chose the money market fund, officials said.

"Putney also failed to satisfy its duty of care when it failed to perform any analysis to determine whether lower-fee money market funds were available and in the best interest of its clients when selecting cash sweep money market funds to its advisory clients," officials said.

In April 2021, officials said, Putney began putting clients' cash in lower-cost money market funds that did not make revenue-sharing payments to Portsmouth.

The settlement: The settlement agreement calls for Lent and his firm to correct disclosures; determine whether it should move clients' cash into lower-cost annuities or different money market funds; update written policies and procedures; and notify current and former clients about the settlement.

Lent is disgorging $707,129.58 in revenue tied to the annuity and money market fund transactions; paying $183.236 in interest; and paying $175,000 in civil penalties to the SEC.

The SEC's headquarters in Washington. Credit: Diego M. Radzinschi/ALM