MetLife Securities agreed Tuesday to pay $25 million to the Financial Industry Regulatory Authority for making negligent material misrepresentations and omissions on variable annuity replacement applications for tens of thousands of customers, who were often switched into annuities that were more expensive or had fewer features.
FINRA fined MetLife Securities $20 million and ordered the firm to pay $5 million to harmed customers.
FINRA found that from 2009 through 2014, MSI misrepresented or omitted at least one material fact relating to the costs and guarantees of customers’ existing VA contracts in 72% of the 35,500 VA replacement applications the firm approved, based on a sample of randomly selected transactions.
MetLife Securities also failed to ensure that its registered reps obtained and assessed accurate information concerning the recommended VA replacements, and did not adequately train its registered reps to compare the relative costs and guarantees involved in replacing one VA with another.
“Each misrepresentation and omission made the replacement appear more beneficial to the customer, even though the recommended VAs were typically more expensive than customers’ existing VAs,” FINRA states.
MSI’s VA replacement business constituted a substantial portion of its business, generating at least $152 million in gross dealer commission for the firm over a six-year period, according to FINRA.
MSI neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
“Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning,” Brad Bennett, FINRA’s executive vice president and chief of enforcement, said in announcing the fine. “Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate, and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling. These obligations take on even greater importance when a significant part of a firm’s marketing effort involves switching customers out of existing annuities.”