FINRA ordered Centaurus Financial, Inc. to pay $634,488.56 in customer restitution after finding supervisory failures involving variable annuity exchanges and recommendations. FINRA also suspended Centaurus broker Patrick Michael Carroll for 12 months in connection with unsuitable variable annuity exchanges.

The Financial Industry Regulatory Authority has censured and fined Centaurus Financial, Inc. and ordered the brokerage firm to pay more than $634,000 in restitution to customers affected by certain variable annuity recommendations.

The regulatory settlement also involves Patrick Michael Carroll, a Centaurus financial professional who has been associated with the firm since 2006. Carroll was suspended from associating with any FINRA member in all capacities for 12 months and fined $10,000.

According to FINRA, Carroll recommended 88 unsuitable deferred variable annuity exchanges between February 2016 and October 2019. FINRA found that these transactions caused customers to incur surrender charges, enter new and longer surrender periods, pay higher fees and, in certain cases, give up existing annuity benefits.

Separately, FINRA found that Centaurus failed to supervise an investment strategy involving two other representatives who recommended that customers purchase commission-paying B-share variable annuities and later pay advisory fees for management of the annuities’ subaccounts.

Centaurus and Carroll accepted FINRA’s findings without admitting or denying them. (FINRA)

FINRA’s Sanctions Against Centaurus Financial and Patrick Carroll

Under the July 15, 2026 settlement, FINRA imposed the following sanctions:

Centaurus Financial

  • A censure
  • A $475,000 fine
  • $561,409.01 in restitution associated with variable annuity surrender charges
  • $73,079.55 in additional restitution associated with allegedly higher customer costs
  • Total customer restitution of $634,488.56

Patrick Michael Carroll

  • A 12-month suspension from association with any FINRA member in all capacities
  • A $10,000 fine

FINRA’s restitution attachment identifies 82 customers affected by the variable annuity exchange findings. A separate attachment identifies additional customers affected by the higher-cost annuity and advisory-fee strategy. (FINRA)

FINRA found that between February 2016 and October 2019, Patrick Carroll recommended 88 exchanges of deferred variable annuities without a reasonable basis to believe the exchanges were suitable for the customers.

According to FINRA, Carroll generally recommended that customers exchange existing B-share variable annuities for bonus-share variable annuities paired with optional stepped-up death-benefit riders.

Many of the customers had purchased their existing annuities on Carroll’s recommendation only three to five years earlier. Those annuities were therefore still within their surrender periods when the new exchanges were recommended.

FINRA found that customers generally paid surrender charges of at least 3% to liquidate their existing contracts. The replacement annuities also generally imposed:

  • Higher ongoing fees
  • New and longer surrender periods
  • Additional restrictions on customer access to funds
  • Different riders and contract benefits

FINRA calculated that the affected customers incurred a combined $561,409.01 in surrender charges. (FINRA)

Customers Allegedly Gave Up Existing Annuity Benefits

Variable annuity exchanges can involve more than surrender charges. An investor may also lose valuable guarantees, riders or other benefits attached to the original contract.

FINRA found that 25 customers gave up existing benefits when exchanging their variable annuities. This included nine customers who allegedly surrendered optional living-benefit riders.

A living-benefit rider may provide an investor with guaranteed income or withdrawal benefits while the investor is alive. These features can be especially important to retirees and investors who purchased an annuity to generate dependable retirement income.

FINRA found that Carroll failed to reasonably evaluate and document whether these customers would benefit from the replacement contracts in light of:

  • The surrender charges imposed
  • The customers’ investment profiles
  • The value of the benefits being surrendered
  • The customers’ existing life-insurance coverage
  • The customers’ liquidity needs
  • Whether customers expected to use the annuity for retirement income
  • The increased fees and longer surrender periods associated with the new contracts

The relevant issue was not simply whether the new annuity offered a bonus. FINRA found that the potential bonus needed to be evaluated against the surrender charges, increased expenses, extended surrender periods and lost benefits associated with the exchange. (FINRA)

Did Annuity Bonuses Offset the Costs of the Exchanges?

FINRA found that paperwork connected with certain transactions told customers that charges incurred through an exchange would be “offset” or recouped through the bonus offered by the new annuity.

However, the replacement annuities generally carried higher fees and longer surrender periods than comparable B-share variable annuities.

A bonus attached to a replacement annuity does not necessarily make the exchange beneficial. Investors must consider the total economic consequences, including:

  • The surrender charge on the old annuity
  • The new annuity’s annual expenses
  • The length of the new surrender period
  • The loss of existing living or death benefits
  • The costs of optional riders
  • The customer’s anticipated holding period
  • Whether the investor needs access to the money
  • Whether the customer is likely to live long enough to recover the exchange costs

FINRA found that Carroll did not reasonably consider and document whether customers would benefit sufficiently from the bonus feature to justify the costs and restrictions associated with the exchanges. (FINRA)

FINRA Found Centaurus Failed to Supervise Carroll’s Recommendations

FINRA also found that Centaurus Financial failed to reasonably supervise certain variable annuity exchange recommendations made by Carroll.

According to the settlement, Centaurus was aware that Carroll had recommended dozens of similar variable annuity exchanges. Nevertheless, FINRA found that the firm failed to identify or adequately investigate red flags suggesting that the transactions might be unsuitable.

FINRA identified alleged supervisory deficiencies that included:

  • Insufficient guidance concerning the impact of surrender charges
  • Inadequate standards for evaluating the loss of existing annuity benefits
  • Failure to determine whether exchanges were appropriate for customers who needed retirement income
  • Inadequate procedures for monitoring representatives with high rates of annuity exchanges
  • Failure to reasonably investigate dozens of transactions supported by similar rationales
  • Failure to consider whether customers would meaningfully benefit from replacement death-benefit riders
  • Inadequate consideration of customer liquidity needs

FINRA found that Centaurus failed to establish procedures that reasonably explained who would monitor annuity exchanges, how frequently reviews would occur, what surveillance tools should be used and which parameters should trigger additional investigation. (FINRA)

Additional Findings Involving B-Share Variable Annuities and Advisory Fees

FINRA’s settlement addresses another Centaurus variable annuity practice occurring between June 30, 2020, and December 31, 2025.

According to FINRA, two Centaurus representatives recommended an investment strategy under which customers:

  1. Purchased B-share variable annuities in brokerage accounts;
  2. Paid product expenses associated with those annuities;
  3. Allowed the representatives and firm to receive commissions associated with the purchases; and
  4. After 12 months, entered advisory relationships under which they paid additional annual fees for management of the annuity subaccounts.

The issuers generally paid Centaurus a 7% commission for sales of B-share variable annuities. After 12 months, the representatives began receiving annual advisory fees of 1% for managing the annuities’ subaccounts.

FINRA found that an advisory-share version of the annuities offered virtually identical features but had annual product fees approximately 0.85% to 0.9% lower. The advisory-share annuities also did not impose surrender charges, while the B-share annuities subjected customers to a seven-year surrender period.

FINRA found that these customers paid $73,079.55 more in fees than they would have paid had they initially purchased advisory-share annuities in advisory accounts. (FINRA)

FINRA Found Centaurus Failed to Address Conflicts of Interest

FINRA found that Centaurus’ procedures failed to address the conflict created when representatives could receive both:

  • An upfront commission generated by the B-share annuity purchase; and
  • Ongoing advisory fees for managing the annuity’s subaccounts after the first year.

According to FINRA, Centaurus did not establish and enforce policies reasonably designed to prevent representatives from placing their financial interests ahead of their customers’ interests.

FINRA also found that the firm’s procedures failed to provide adequate guidance for comparing:

  • Commission-based and advisory variable annuities
  • B-share and I-share annuity contracts
  • Product-level fees
  • Surrender periods
  • Advisory charges
  • Customer liquidity needs
  • The customer’s anticipated use of the annuity
  • The total cost of the recommended account and product combination

As a result, FINRA found that Centaurus violated Regulation Best Interest and several FINRA rules governing variable annuity transactions and brokerage supervision. (FINRA)

What Is a Variable Annuity Exchange?

A variable annuity exchange occurs when an investor surrenders an existing annuity and uses the proceeds to purchase another annuity.

Some exchanges can be appropriate. A replacement annuity may provide better features, lower expenses or benefits more closely aligned with an investor’s financial circumstances.

However, an exchange can be harmful when it causes the investor to:

  • Pay a surrender charge
  • Begin a new surrender period
  • Lose valuable income guarantees
  • Lose an appreciated living-benefit base
  • Pay higher annual expenses
  • Purchase unnecessary riders
  • Sacrifice liquidity
  • Generate another commission for the financial professional
  • Exchange one annuity for another without receiving a meaningful economic benefit

FINRA rules require financial professionals and brokerage firms to evaluate the entire transaction, including its costs, benefits and consequences for the particular customer.

Warning Signs of a Potentially Problematic Annuity Exchange

Current and former Centaurus customers may want to review their accounts if a financial professional recommended replacing one annuity with another.

Potential warning signs include:

  • The old annuity was still subject to surrender charges
  • The new annuity restarted the surrender period
  • The representative emphasized an upfront bonus without clearly discussing higher long-term fees
  • The customer lost a living-income or death-benefit rider
  • The representative recommended several annuity exchanges over time
  • The investor was a retiree who needed access to the funds
  • The annuity was described as completely safe or guaranteed
  • The customer did not receive a meaningful comparison of the old and new contracts
  • The representative received another commission from the exchange
  • Advisory fees were later charged on the annuity’s subaccounts
  • A lower-cost advisory-share annuity was available
  • The recommendation did not account for the customer’s age, income needs or life expectancy

The existence of one warning sign does not necessarily establish that a recommendation was improper. The complete transaction and the investor’s financial circumstances must be evaluated.

Can Other Centaurus Customers Pursue FINRA Arbitration Claims?

FINRA’s order requires Centaurus to compensate the customers specifically listed in the settlement’s restitution attachments. That does not necessarily mean every potentially affected Centaurus customer has been identified or fully compensated.

FINRA expressly stated that its restitution order does not prevent customers from pursuing their own actions for restitution or other remedies. (FINRA)

Depending on the circumstances, investors may be able to pursue claims involving:

  • Unsuitable variable annuity exchanges
  • Violations of Regulation Best Interest
  • Misrepresentation of annuity costs or benefits
  • Failure to disclose surrender charges
  • Failure to disclose higher annual expenses
  • Loss of valuable living-benefit riders
  • Conflicts of interest
  • Excessive commissions
  • Unnecessary advisory fees
  • Breach of fiduciary duty
  • Negligence
  • Failure to supervise

Investors generally bring these claims against brokerage firms through FINRA arbitration.

The compensation available in an individual claim may differ from the restitution calculated in a regulatory settlement. Depending on the facts and applicable law, an investor may seek recovery associated with surrender charges, excess fees, lost benefits, investment losses or other damages.

What Should Centaurus Customers Review?

Investors who purchased or exchanged variable annuities through Centaurus Financial should locate and preserve:

  • Monthly and quarterly account statements
  • Original and replacement annuity contracts
  • Annuity exchange forms
  • Applications and disclosure documents
  • Surrender-charge schedules
  • Annual fee disclosures
  • Living-benefit and death-benefit rider documents
  • Written product comparisons
  • Emails and text messages with the representative
  • Records showing commissions and advisory fees
  • Investment advisory agreements
  • Documents explaining the customer’s objectives
  • Records concerning retirement-income needs
  • Notes from meetings and telephone conversations
  • Correspondence concerning complaints made to Centaurus

These records may help determine whether the customer paid unnecessary charges, lost valuable benefits or was placed into a higher-cost product or account arrangement.

A payment made under FINRA’s restitution order may not represent all damages an investor could potentially claim.

For example, FINRA’s restitution calculation in the Carroll matter focused on surrender charges. An individual investor’s losses could involve additional issues, such as:

  • Higher product expenses
  • Lost contract benefits
  • Lost investment value
  • Unnecessary rider expenses
  • Lost access to funds
  • Tax consequences
  • Advisory fees
  • Additional commissions
  • Other financial harm associated with the exchange

Any investor who receives a restitution check should carefully review the accompanying correspondence before signing a release or taking any action that could affect separate legal rights.

Time Limits Apply to FINRA Arbitration Claims

FINRA Rule 12206 generally establishes a six-year eligibility period calculated from the occurrence or event giving rise to a claim. Other state or federal statutes of limitation may also apply and can impose shorter deadlines.

The FINRA settlement does not necessarily pause, extend or restart the deadline for an individual customer to file a claim.

Because Carroll’s annuity exchanges occurred between February 2016 and October 2019, customers should promptly evaluate potential eligibility and limitation issues. The separate Centaurus findings involving B-share annuities and advisory fees extend through December 31, 2025, making those recommendations particularly relevant to a current investor-recovery campaign. (FINRA)

Speak With a Centaurus Financial Investment-Loss Attorney

Sonn Law Group is investigating potential claims involving Centaurus Financial, Patrick Michael Carroll, variable annuity exchanges, surrender charges, lost contract benefits and recommendations that caused customers to pay both product-level and advisory fees.

Investors should consider having their annuity transactions reviewed if they:

  • Exchanged an existing annuity through Centaurus;
  • Paid a surrender charge;
  • Lost an income or death-benefit rider;
  • Entered a new seven- to ten-year surrender period;
  • Purchased a bonus-share annuity;
  • Were charged advisory fees on variable annuity subaccounts; or
  • Were not shown a lower-cost annuity alternative.

A review of the old and new contracts can help determine whether the exchange provided a meaningful customer benefit or primarily generated additional compensation for the financial professional and brokerage firm.

Centaurus Financial and Patrick Michael Carroll accepted FINRA’s findings without admitting or denying them. This article summarizes FINRA’s public regulatory settlement and should not be interpreted as an independent finding of liability.

The two Centaurus representatives associated with the B-share and advisory-fee findings are not named in the FINRA settlement. This article does not speculate about their identities.

Every investor claim depends on its individual facts, available records, applicable law and filing deadlines. Past results do not guarantee future outcomes.