CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC. ANONYMOUS CASE HISTORIES NUMBER 29926

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1 CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC. ANONYMOUS CASE HISTORIES NUMBER This is a summary of a decision issued following the October 2016 hearings of the Disciplinary and Ethics Commission ( Commission ) of Certified Financial Planner Board of Standards, Inc. ( CFP Board ). The conduct at issue in this case occurred prior to and after January 1, The Rules in effect for conduct occurring before January 1, 2009 were Rules 101 through 705 of CFP Board s Code of Ethics and Professional Responsibility ( Code of Ethics ). The Rules in effect for conduct occurring after January 1, 2009 were Rules 1.1 through 6.5 of CFP Board s Rules of Conduct. I. Issue Presented Whether a CFP professional ( Respondent ) violated CFP Board s Standards of Professional Conduct when he sold a variable annuity to one client shortly after her husband s death and sold single-premium immediate annuities to two elderly clients. II. Findings of Fact Relevant to the Commission s Decision Respondent s Background Respondent is the CEO and President of MFI, an investment adviser. At all times relevant to this matter, Respondent was a registered representative and an investment adviser representative with FLP, a broker dealer. Respondent has also passed five industry exams, including the Series 6, 7, 24, 63 and 65. Respondent has life, property, casualty, disability and variable line insurance licenses. Respondent is also a Chartered Financial Consultant, Chartered Life Underwriter, Chartered Mutual Fund Counselor, Chartered Retirement Planning Counselor, and Life Underwriter Training Counsel Fellow RMA Customer Complaint Respondent began working with RMA s husband ( MRA ) in During this time, Respondent and MRA developed a good relationship. Respondent set up an Investment Retirement Account ( IRA ) that was invested in a HAR variable annuity ( HAR Annuity ) that did well. Respondent indicated that MRA liked the guarantee it offered and was very happy with the performance. MRA had primary responsibility for he and his RMA s finances. In June 2007, MRA passed away. RMA was 84-years old at the time. RMA contacted Respondent shortly after her husband s death because she needed approximately $10,000 for his burial expenses. In June 2007, RMA and her children met with Respondent to discuss her finances. Respondent asserted that he asked them detailed questions about the RMA s financial circumstances, investment objectives, risk tolerance and time horizon. Respondent learned that RMA had approximately $60,000 in bank accounts, $200,000 in a brokerage account, and an annuity, which gave her total assets of approximately $400,000. According to Respondent, RMA indicated that her primary investment objective was to receive steady income to cover her living expenses, that she was comfortable with a long-term investment, that she was not satisfied with the low rates she was earning with her IRA Certificate of Deposit ( CD ) and that she hoped to preserve her assets to pass to her children on her death. Respondent also discussed RMA s budget and the fact that she would be losing between $800 and $825 per month in income due to the loss of her husband s social security payments. After these discussions, Respondent informed RMA that a variable annuity would best - 1 -

2 suit her investment goals and reviewed the different features of a variable annuity. According to Respondent, RMA and her daughters agreed that a guaranteed income rider, guaranteed death benefit and the potential for market growth were consistent with RMA s stated investment goals. RMA s daughter disputed this account during her testimony. She testified that the only change RMA wanted to make was to have her husband s assets put in her name after his passing. In June 2007, a few days after the first meeting and a week after MRA s death, Respondent met with RMA alone. At this meeting, Respondent recommended and sold to RMA a LCA Annuity ( LCA Annuity ). Respondent stated that the LCA Annuity was funded with cash and CDs inside an IRA account. A few weeks later, RMA added the proceeds of the death benefit from her husband s HRA Annuity. Respondent stated that the LCA Annuity represented approximately one third of RMA s investment portfolio, which her daughter testified was $392,000. The LCA Annuity had a mortality and expense charge of 1.3%, with a rider fee of.35%. According to RMA s daughter, the LCA Annuity had a guaranteed monthly payment for RMA. RMA was able to withdraw up to 15% per year without a penalty. Respondent indicated that he did not believe RMA would take withdrawals other than he required minimum distribution for her IRA, but she began taking approximately $826 per month from the annuity. In May 2008, RMA s daughter filed a complaint with State. RMA indicated that she did not really understand the LCA Annuity. RMA also complained about the illiquidity of the LCA Annuity given her age and status as a widow. FLP denied RMA s claim but, as a result of the State investigation, LCA agreed to return the remaining balance of RMA s variable annuity to her without penalty. The claim was settled for approximately $46,000 in February In April 2009, State issued a Technical Assistance Letter to Respondent, which stated that the sale of a variable annuity to RMA was not suitable considering her age and health. Additionally, State was concerned with the timing of the sale eight days after MRA s death and the seven years of surrender charges that would be effective into RMA s 90s. The letter noted State closed its investigation and issued the Technical Assistance Letter in lieu of other formal action that could be taken by the Insurance Commissioner MRW & ELW Grievance In April 2008, MRW and ELW began working with Respondent. MRW and ELW were 84 and 82 years old respectively. MRW was a retired agronomist and farmer. MRW and ELW had an estimated net worth in excess of $3 million that was accumulated from the sale of MRW s business and the assets ELA brought to the marriage. MRW primarily handled their finances. Between April 2008 and December 2008, Respondent met with MRW several times to discuss MRW s goals, objectives, and needs, taking into account his financial, family, business and personal situation. In the notes from the initial meeting, Respondent indicated that MRW was interested in municipal bonds and intended to give $80,000 to $100,000 to charity and his heirs each year. According to a New Account Application from June 2008 for the MRW and ELW Living Trust, MRW and ELW s investment objective was income with moderate growth, their annual income was between $100,000 and $249,000, their net worth was in excess of $1 million and they had 30 years of experience in mutual funds, annuities, stocks and bonds. Respondent stated that MRW and ELW had a liquid net worth exceeding $2,000,000 and Respondent managed $1,000,000. According to the Suitability Forms Respondent filled out for the clients in December 2008 and February 2009, MRW and ELW s stated net worth was $3,000,000. Respondent denied providing financial planning to MRW and ELW. Respondent did not provide MRW and ELW with a financial plan or financial planning agreement. Despite this, Respondent indicated in his - 2 -

3 notes from May 22, 2008, that he discussed a financial planning goal summary with MRW and ELW. Respondent was also one of several financial advisers with which MRW and ELW worked. Respondent helped MRW and ELW open several accounts. First, in June 2008, Respondent set up a Hartford IRA for ELW for $175,300. According to Respondent s notes, this purchase was financed through the transfer of two fixed annuities from AUL. Second, in July 2008, the MRW and ELW Living Trust opened an advisory account with FLP. Third, in July 2008, Respondent sold the MRW and ELW Living Trust a Hartford Leaders Plus variable annuity for $230,700. According to Respondent s notes, this purchase was financed through the 1035 exchange of an ING variable annuity. In December 2008, Respondent also assisted MRW and ELW with the transfer of a Hartford Director Annuity MRW and ELW purchased in the 1997 to an Ohio National Variable Annuity. Respondent indicated that the costs in the Ohio National Variable Annuity were.35% less per year. He also noted that there were some surrender charges, but that the death benefit in the Hartford Director Annuity was only equal to the contract value. According to Respondent s notes, he began looking at quotes for a life-only, single premium immediate annuity ( SPIA ) quote for MRW and ELW in November Around this time, MRW brought a quote for a SPIA without a death benefit from New York Life Insurance Company ( New York Life ) to Respondent. The quote for the SPIA provided MRW with approximately $1,500 per month with a one-time premium of $100,000. Respondent asserts the quote was for a SPIA without a death benefit. Respondent testified that he was unable to verify the New York Life SPIA quote. Respondent worked to obtain additional quotes and ultimately recommended MRW and ELW each purchase a SPIA. Respondent justified his recommendation by stating that MRW sought the replacement income stream, in part, because his payments from the sale of his business would soon be coming to an end, the income he was deriving from his investments was decreasing due to the financial crisis, and he wanted to have income so he could continue to make charitable gifts. In December 2008, Respondent sold MRW a Nationwide SPIA for $100,000. The annuity income option was for a single life and provided $1,400 in income per month. MRW was identified as the annuitant. In the documents for the Nationwide SPIA, the single life income option is defined as Annuity payments will be paid during the life time of the annuitant. Payments will cease with the last payment due. This definition does not indicate that the beneficiaries will not receive the remainder of the initial premium if the annuitant dies prior to the break-even point. Despite this, on the account application for the Nationwide SPIA, a member of Respondent s staff had completed the section for beneficiaries, identifying ELW as the beneficiary of the annuity. Respondent asserts that he explained to MRW that the SPIA did not have a death benefit and that he discussed how long MRW would have to live to recover his premium. According to testimony from his daughter, MRW was aware that he would have to live for at least another five to seven years after the purchase of the SPIA to break even on his premium payment. Respondent indicated that MRW was fine with the SPIA without a death benefit because he wanted the highest monthly payout possible and had other assets to pass to heirs. Respondent also indicated that MRW had informed him that he had diabetes, but expressed no concern that his diabetes would impact his life span and in fact, MRW expected live for another 10 years. The grievant disputes this characterization of MRW s health and asserts that MRW was in poor health. That same day, Respondent sold also ELW a West Coast SPIA for $100,000. The annuity income option was Single Life Only, which provided ELW with $1,200 in income per month. ELW subsequently surrendered the West Coast SPIA and purchased a Penn Mutual SPIA for $100,000 in February The - 3 -

4 annuity income option was Single Life Annuity Only with No Refund, which provided ELW with $1,200 in income per month. Respondent also listed the value of the annuities as $100,000 on account statements. Respondent testified that he listed these values on the account statements at the request of MRW, who wanted to track where he was in relation to the monthly payments he received. Respondent would later change this value to $0 after MRW s death. MRW passed away in October ELW passed away approximately seven months later. MRW and ELW s passing resulted in their loss of approximately $90,000 from their initial premiums, which remained with Nationwide and Penn Mutual because their SPIAs did not contain any death benefits or refund features. MRW lost approximately $52,000 of his investment in the Nationwide SPIA and ELW lost approximately $38,000 of her investment in the Penn Mutual SPIA. In March 2013, GAW, as personal representative for the Estate of MRW filed a civil suit in the Superior Court of State against Nationwide Life Insurance Company, MFI and Respondent. The civil suit alleged causes of action sounding in a violation of State statutes, breach of duty as an insurance agent, consumer protective violations, and unfair practices. Respondent and MFI filed an answer denying the claims raised in the civil suit. GAW hired an expert witness, JNO, who analyzed the Nationwide SPIA and issued an expert report for a civil suit. JNO opined that the Nationwide SPIA was unsuitable for MRW because MRW s health state was such that it was unlikely he would receive income payments totaling his original premiums. According to JNO, if Respondent was unaware of MRW s health problems, he violated his duty to make a reasonable effort to determine MRW s health status. Respondent failed to provide MRW with the option of an annuity with a death benefit, a standard industry practice, so that MRW was unable determine which type of SPIA would have been most suitable for him. In response to GAW s March 2013 civil suit, Respondent, Nationwide and MFI moved for summary judgment. The trial court granted the summary judgment and dismissed the case. GAW appealed and, in March 2016, the Appeals Court reversed the decision of the lower court stating that there were genuine issues of fact to be decided based on breaches of fiduciary duty and the Consumer Protection Act. The Appeals Court made the following findings: Respondent assisted MRW and ELW with financial planning; A reasonable trier of fact could conclude that MRW s estate lost approximately $52,000, not including interest, because of the sale of an unsuitable annuity; The facts support findings that Respondent violated a duty and the violation caused MRW and his estate damage; and A reasonable trier of fact could conclude that the Estate of MRW lost $52,000 because of the sale of an unsuitable annuity. The parties resolved the civil suit by entering into a TEDRA Agreement Regarding the Settlement of the MRW and ELW Living Trust. The TEDRA Agreement assigned all claims of MRW s estate to GAW. In July 2015, State OIC notified Respondent that he was under investigation related to his sale of a SPIA to MRW. The OIC concluded in its Final Report of Investigation that the allegation that Respondent misrepresented the terms of the Nationwide annuity was substantiated. The Report determined that Respondent falsely named a beneficiary on the policy and failed to clearly disclose to MRW there was no death benefit associated with the Nationwide annuity, he provided MRW with financial statements that had - 4 -

5 incorrect cash values listed for the Nationwide annuity, he failed to deliver the annuity contract to MRW in a timely manner, and failed to adequately inform MRW of alternative products that would have offered a death benefit and met his financial goals. The Report also concluded that there was insufficient evidence to indicate Respondent should have considered MRW s medical condition and life expectancy when selling the Nationwide annuity and to show that Respondent sold two annuities to ELW when she was suffering from dementia. At the time of the hearing, the OIC had not taken any final action against Respondent. III. Commission s Analysis and Conclusions Regarding Rule Violations First Ground for Discipline omissions that violate Rule 201 of the Code of Ethics, which provides that, a CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services. The Commission reviewed the sale of the annuity to RMA and determined that CFP Board did not meet its burden to prove sale of the annuity was unsuitable. While the timing of the sale of the annuity was less than ideal, the annuity fulfilled the clear need for RMA to replace the social security income she was losing due to her husband s death. The variable annuity was funded from cash, a low-interest rate CD and the proceeds from her husband s prior annuity. These investments were not generating the income RMA needed. With the ability to remove 15% from the annuity on an annual basis, the annuity met RMA s income needs. The annuity also had lower internal costs than the products in which she previously held portions of the money. Similarly, the Commission determined that CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of the MRW and ELW s net worth, the MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. The MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 201 of the Code of Ethics. Second Ground for Discipline omissions that violate Rule 202 of the Code of Ethics, which provides that, a financial planning practitioner shall act in the interest of the client. The Commission reviewed the sale of the annuity to RMA and determined that CFP Board did not meet its burden to prove sale of the annuity was unsuitable. While the timing of the sale of the annuity was less than ideal, the annuity fulfilled the clear need for RMA to replace the social security income she was losing due to her husband s death. The variable annuity was funded from cash, a low-interest rate CD and the proceeds from her husband s prior annuity. These investments were not generating the income RMA needed. With the ability to remove 15% from the annuity on an annual basis, the annuity met RMA s income needs. The annuity also had lower internal costs than the products in which she previously held portions of the money

6 Similarly, the Commission determined that CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of the MRW and ELW net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 202 of the Code of Ethics. Third Ground for Discipline omissions that violate Rule 606(a) of the Code of Ethics, which provides that, a CFP Board designee shall perform services in accordance with applicable laws, rules and regulations of governmental agencies and other applicable authorities. The Commission reviewed the sale of the annuity to RMA and determined that CFP Board did not meet its burden to prove sale of the annuity was unsuitable. While the timing of the sale of the annuity was less than ideal, the annuity fulfilled the clear need for RMA to replace the social security income she was losing due to her husband s death. The variable annuity was funded from cash, a low-interest rate CD and the proceeds from her husband s prior annuity. These investments were not generating the income RMA needed. With the ability to remove 15% from the annuity on an annual basis, the annuity met RMA s income needs. The annuity also had lower internal costs than the products in which she previously held portions of the money. Similarly, the Commission determined that CFP Board did not meet its burden to prove that the sale of the SPIA to MRA and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of MRW and ELW s net worth, the MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 606(a) of the Code of Ethics. Fourth Ground for Discipline omissions that violate Rule 703 of the Code of Ethics, which provides that, a financial planning practitioner shall make and/or implement only recommendations which are suitable for the client. The Commission reviewed the sale of the annuity to RMA and determined that CFP Board did not meet its burden to prove sale of the annuity was unsuitable. While the timing of the sale of the annuity was less than ideal, the annuity fulfilled the clear need for RMA to replace the social security income she was losing due to her husband s death. The variable annuity was funded from cash, a low-interest rate CD and the proceeds from her husband s prior annuity. These investments were not generating the income RMA needed. With the ability to remove 15% from the annuity on an annual basis, the annuity met RMA s - 6 -

7 income needs. The annuity also had lower internal costs than the products in which she previously held portions of the money. CFP Board did not meet its burden to prove that the sale of the SPIA to MRA and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of MRW and ELW s net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 703 of the Code of Ethics. Fifth Ground for Discipline Pursuant to Article 3(a) of the Disciplinary Rules, there are grounds to discipline Respondent for acts or omissions that violate Rule 1.3 of the Rules of Conduct, which provides that if the services include financial planning or material elements of financial planning, the certificant or the certificant s employer shall enter into a written agreement governing the financial planning services ( Agreement ). The Agreement shall specify: (a) the parties to the agreement; (b) the date of the agreement and its duration; (c) how and on what terms each party can terminate the agreement; and (d) the services to be provided as part of the agreement. Respondent, a certificant, provided material elements of financial planning to MRW and ELW but failed to provide a written agreement, thereby violating Rule 1.3 if the Rules of Conduct. When reviewing the four factors identified in CFP Board s definition of financial planning, three of the four factors weigh in favor of Respondent s work with MRW and ELW constituting financial planning or material elements thereof. First, Respondent provided services in at least two financial planning subject areas investment planning and cash flow planning. Respondent assisted MRW and ELW with a managed account where they held significant investments. In addition, the entire focus of the SPIA was to address the income needs of MRW and ELW. Second, Respondent performed comprehensive data gathering. In his Motion for Summary Judgment in the civil suit, Respondent indicated that he met with MRW several times to discuss MRW s goals, objectives, and needs, taking into account his financial, family, business and personal situation. Respondent notes confirm this fact. Of critical importance in Respondent s notes, he discusses that he reviewed with MRW and ELW their financial planning goal summary. Finally, the breadth and the depth of the recommendations was indicative of financial planning or material elements of financial planning. Respondent managed or provided advice to MRW and ELW on approximately half of their portfolio. Many of the products he recommended had long-term time horizons and would impact MRW and ELW finances for long periods of time. Given that Respondent provided financial planning or material elements of financial planning, Respondent should have entered into a written financial planning agreement with the client. Respondent did not. Sixth Ground for Discipline omissions that violate Rule 1.4 of the Rules of Conduct, which provides that a certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board. CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of - 7 -

8 MRW and ELW s net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 1.4 of the Rules of Conduct. Seventh Ground for Discipline omissions that violate Rule 4.3 of the Rules of Conduct, which provides that a certificant shall be in compliance with applicable regulatory requirements governing professional services provided to the client. CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of MRW and ELW s net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 4.3 of the Rules of Conduct. Eighth Ground for Discipline omissions that violate Rule 4.5 of the Rules of Conduct, which provides that a certificant shall make and/or implement only recommendations that are suitable for the client. CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of MRW and ELW s net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Rule 4.5 of the Rules of Conduct. Ninth Ground for Discipline Pursuant to Article 3(b) of the Disciplinary Rules, there are grounds to discipline Respondent for acts or omissions that violate Practice Standards 400-1, which provides that the financial planning practitioner shall consider sufficient and relevant alternatives to the client s current course of action in an effort to reasonably meet the client s goals, needs and priorities. Respondent, a financial planning practitioner, failed to consider sufficient and relevant alternatives when he recommended and sold a variable annuity to RMA and SPIAs to MRW and ELW, thereby violating Practice Standards The record indicates that Respondent was in a financial planning relationship with RMA. When reviewing the four factors identified in CFP Board s definition of financial planning, three of the four factors weigh - 8 -

9 in favor of Respondent s work with RMA constituting financial planning or material elements thereof. First, Respondent provided services in at least two financial planning subject areas investment planning and cash flow planning. Respondent assisted RMA with investing the proceeds of her husband s annuity and replacing the income she lost when he died. Second, Respondent performed comprehensive data gathering. The record contains a reference to a January 2008 Financial Planning Goals Summary. Respondent asserted that he asked them detailed questions about the RMA and her husband s financial circumstances, investment objectives, risk tolerance and time horizon. Finally, the breadth and the depth of the recommendations was indicative of financial planning or material elements of financial planning. Respondent managed or provided advice to the RMA on all of her portfolio, and the annuity consisted of approximately one-third of her portfolio. The annuity had a long-time horizon and would impact RMA s finances for long periods of time. Respondent claimed that he discussed alternatives with MRW and ELW and RMA, but there was no evidence to support that claim. Respondent appears to have taken relatively detailed notes on his interaction with MRW and ELW and if Respondent had discussed alternatives with them, he would have documented those alternatives. Thus, Respondent violated Practice Standard Tenth Ground for Discipline Pursuant to Article 3(b) of the Disciplinary Rules, there are no grounds to discipline Respondent for acts or omissions that violate Practice Standards 500-2, which provides that the financial planning practitioner shall select appropriate products and services that are consistent with the client s goals, needs and priorities. The Commission reviewed the sale of the annuity to RMA and determined that CFP Board did not meet its burden to prove sale of the annuity was unsuitable. While the timing of the sale of the annuity was less than ideal, the annuity fulfilled the clear need for RMA to replace the social security income she was losing due to her husband s death. The variable annuity was funded from cash, a low-interest rate CD and the proceeds from her husband s prior annuity. These investments were not generating the income RMA needed. With the ability to remove 15% from the annuity on an annual basis, the annuity met RMA s income needs. The annuity also had lower internal costs than the products in which she previously held portions of the money. CFP Board did not meet its burden to prove that the sale of the SPIA to MRW and ELW was unsuitable. The two SPIAs accounted for $200,000 of a more than $2 million portfolio. At approximately 10% of MRW and ELW s net worth, MRW and ELW could afford to take a risk to obtain replacement income for the income they anticipated losing. They needed to replace the income to continue to maintain their level of charitable contributions and to maintain their lifestyle. MRW and ELW made a conscious choice to focus on income with this investment rather than passing assets on to their heirs. The record is also clear that MRW specifically sought out this product, given that he came to Respondent with a quote for a SPIA without a death benefit. Thus, Respondent did not violate Practice Standards IV. Discipline Imposed Pursuant to Article 4 of the Disciplinary Rules, the Commission must establish grounds for discipline in order to impose discipline or sanctions. Once the Commission has established grounds for discipline, it has wide discretion to impose any sanction under Article 4 of the Disciplinary Rules. The Commission determined that Respondent s conduct violated Rule 1.3 of the Rules of Conduct and Practice Standard and provided grounds for discipline under Articles 3(a) and 3(b) of the - 9 -

10 Disciplinary Rules. After careful consideration of the evidence in Respondent s matter, the Commission decided to issue Respondent a private censure pursuant to Article 4.1 of the Disciplinary Rules. In arriving at its decision, the Commission consulted Anonymous Case Histories and The Commission also consulted Sanction Guideline 11 (Diligence) and 16 (Failure to Enter into a Written Financial Planning Agreement While in a Financial Planning Engagement). The Commission considered in mitigation that Respondent had no prior disciplinary history. The Commission did not consider any aggravating factors. While the recommendations made by Respondent to RMA and MRW and ELW were not unsuitable based on the record, Respondent should have followed the financial planning process more closely. Respondent failed to enter into a financial planning agreement with financial planning clients and he did not document his review of alternatives he alleges he discussed with a client. These lapses warranted the discipline of a private censure