In the wake of a $3-million settlement with Massachusetts over “unethical and dishonest conduct” by its securities brokerage, the Citizens Financial Group says it has strengthened oversight and imposed new ethics rules such as a ban on accepting gifts or entertainment.
“We recognize that in this era when financial institutions are selling multiple products, we have an obligation to our customers to ensure they have the highest degree of confidence in the advice and products they are buying from Citizens,” said vice chairman Robert Mahoney in a news release.
Citizens had been under fire for encouraging elderly customers to buy variable annuities even though, as Massachusetts Secretary of the Commonwealth William F. Galvin put it, they are “generally not suitable for older investors,” because of high surrender charges, significant up-front fees, and “often-illusory” tax and probate benefits.
Citizens wasn’t alone in this practice, but Galvin zeroed in on the bank after getting a complaint about a branch in South Yarmouth where tellers were earning compensation on a point system by referring depositors to financial consultants of Citizens’ brokerage, CCO Investment Services Corp. In addition, Galvin found, CCO gave insurance company wholesalers “unrestricted access” to financial consultants and bank employees, and let them provide gifts, food and beverages and sports tickets.
The practices and CCO’s failure to document them violated securities laws, Galvin said. As part of a consent order, CCO agreed to offer all Massachusetts customers who were 75 or older when they bought a variable annuity a chance to recover their money without penalty.
Lawrence K. Fish, chairman, president and CEO of Citizens Financial, said in a statement that he regretted “mistakes made by our broker dealer” and assured customers that “we have taken prompt and corrective action.”
In a news release Aug. 19, the bank outlined the rule changes:
*It has barred employees from accepting any gifts or entertainment, a policy that Citizens noted is stricter than a private-sector regulatory group’s ethics guidelines.
“This policy removes any appearance of undo (sic) influence from an outsider,” the release says, so customers are “confident that they are receiving independent, unvarnished advice. It also reinforces CCO’s intention to meet the highest ethical standards.”
*Adopted a “dedicated financial consultant model,” so only a financial consultant who’s worked with a client advises him or her about investment products. Before, bank employees and insurance wholesalers could also be involved.
*Hired a new compliance director, Kevin Fein, former chief compliance officer for Compass Bank in Texas.
*Hired the international accounting firm Pricewaterhouse Coopers to conduct a “complete analysis” of its business operation. In addition, as required by the settlement with Galvin, CCO also is hiring an independent consultant to review company policies and procedures.
“Our first priority is to our customers,” said Mahoney. “We’ve taken these aggressive steps to increase oversight to ensure we are maintaining the highest ethical standards.”
