Farmers Insurance Group of Companies, was incorporated in 1927. Ten years later its current headquarters were built in Los Angeles. In 1989, a hostile takeover attempt for $4.2 billion turned “friendly” for a billion more and the firm was taken private. Several ownership adjustments have since placed control in a Swiss firm. Farmers now operates in 41 U.S. states, with over 15 million clients, 18,000 employees and 17,500 independent agents.
Farmers Financial Solutions LLC, the securities subsidiary of Farmers, became licensed by the NASD in 2000, yet has more than 5,000 registered representatives at last count. The firm’s website indicates that its efforts are to market mutual funds and variable annuities and life insurance products provided by a life insurance subsidiary of Farmers. The website adds: “Now we can help you build savings for your retirement, your child’s education, a dream home or, maybe, a special vacation!”
Farmers is careful to point-out that the parent company and insurance subsidiary do not make recommendations. The firm also describes its agents as “independent contractors” and “independent agents.” This is important because laws regarding insurance agents often do not extend liability for agent wrongdoing to an insurance company. However, the securities industry requires securities firm to supervise agents, which has apparently been a problem for Farmers.
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In response to the NASD’s request for comment concerning proposed changes in branch office supervision, the Vice President of Compliance for Farmers Financial Solutions LLC revealed concerns in a public comment.
Unlike Wall Street brokerage firms which manage 10, 20 or even dozens of registered representatives in a single office with supervisor(s) on site, Farmers has thousands of agents who maintain their own offices and are not even employees of the firm. Firms with one or two registered securities personnel in an office can have special difficulties meeting required standards of supervision of representatives.
The NASD has attempted to accommodate firms with a dispersed base of brokers while trying to maintain supervisory standards. Meanwhile, Farmers’ Compliance VP voiced his belief that the NASD’s branch classification model was not appropriately defined. He also stated: “While the proposal allows a limited supervisory branch to supervise one or more non-branch, all supervisors should be required to be Registered Principals not permitted to be registered representatives acting as a “person in charge”.
Those representing the interests of investors, including the Shepherd Smith & Edwards Law firm are also concerned with having the term “branch” expanded to include more than one location while allowing registered representatives, not trained in supervision, to the a “person in charge” of a location. We commend Farmers on its stand.
The NASD censured and fined Farmers Financial Solutions LLC $125,000 for failing to make required disclosures about its registered representatives in a timely maner. Such disclosures are due in 30 days but, according to the NASD’s sanction order, 66% of Farmers reports were late.
The investigation was made as a result of complaints by securities attorneys, including the law firm of Shepherd Smith Edwards & Kantas LTD LLP, and others, that securities firms were ignoring requirements to notify regulators of customer complaints, regulatory actions and even criminal charges and conviction in a timely fashion. Some disclosures were made years after the events, often after the broker left the firm and some never were filed at all.
The industry wide investigation resulted in censures and fines of 29 firms, including Farmers. The NASD states that over 8,000 disclosures of reportable information about brokers at these firms were late
Regulators must rely upon firms to insure timely disclosure because oversight of more than 665,000 registered brokers at nearly 5,300 registered firms would be almost impossible. Furthermore, firms chose decades ago to be “self-regulated”. “Investors, regulators and others rely heavily on the integrity of the information in the CRD public reporting system … and the integrity of that system depends on accurate and prompt reporting by firms,” said an NASD official.