According to FINRA, Lincoln Financial Distributors, Inc. was censured and fined $300,000 on July 8, 2024, for indirectly paying approximately $2.9 million in transaction-based compensation to an unregistered entity.

The firm caused payments totaling approximately $8.7 million in transaction-based compensation to be paid to an unaffiliated selling broker-dealer in connection with the sale of variable universal life insurance, a securities product. Of this amount, the firm directed that a portion of those funds be paid to an unregistered entity. The unregistered entity was a limited liability company not affiliated with the firm and primarily owned by an insurance agent who was not registered with FINRA. One of the selling broker-dealer's registered representatives also held a minority stake in the entity.

This violation is significant because FINRA registration requirements exist to protect investors by ensuring that individuals and entities receiving transaction-based compensation meet qualification standards, undergo background checks, and are subject to regulatory oversight and supervision. When firms pay transaction-based compensation to unregistered entities, they circumvent these important investor protections.

The case serves as a reminder that securities firms must ensure that all individuals and entities receiving transaction-based compensation from securities transactions are properly registered. Investors should be aware that the people selling them securities products should be registered with FINRA and that this registration can be verified through FINRA's BrokerCheck system. This transparency helps ensure accountability and provides investors with important information about the professionals handling their investments.