The Financial Industry Regulatory Authority fined Prudential $1 million for retirement plan investment-related violations from “at least” January 2010 to June 2017, according to FINRA.
Without admitting or denying the findings, Prudential signed a FINRA letter of acceptance, waiver and consent Dec. 19 in which it consented to the fine, as well as a censure and to comply with various requested initiatives designed to make the company compliant with FINRA rules. FINRA accepted the letter Tuesday.
In a statement provided to ThinkAdvisor on Wednesday, Prudential said: “Transparency, doing the right thing, and maintaining constructive relationships with regulators are foundational to how Prudential conducts business. Upon discovery of the issues following a FINRA inquiry, Prudential conducted a thorough review, reported its findings, and fully cooperated with FINRA. We have taken action to address the issues and are pleased to have this matter resolved.”
However, according to FINRA, “during at least the period January 2010 to June 2017,” Prudential Investment Management Services “provided employer sponsors and employee participants, in retirement plans administered and/or maintained by the Prudential Retirement business unit … with inaccurate expense ratio information and historical performance information for numerous investment options in defined contribution plans” offered through group variable annuities.
In addition, from at least October 2003 to December 2018, PIMS “provided inaccurate third-party ratings for investment options in retirement plan Group VAs,” FINRA said in the letter. The firm “made these misstatements in nine different types of communications, including customer statements and quarterly fact sheets,” according to FINRA.
Last, from at least January 2004 to September 2019, in “multiple client-facing publications, PIMS provided performance data for money market funds available as investment options in retirement plans, but failed to provide ‘Seven-Day Yield’ information as required” by the SEC’s Rule 482(e) under the Securities Act of 1933, FINRA said.
Throughout the period of the violations, Prudential “did not have supervisory systems or written supervisory procedures reasonably designed to achieve compliance with the content standards of FINRA’s advertising rule by ensuring that its communications to customers about retirement plan investments and related investment options were accurate,” according to FINRA.
As a result, the firm violated FINRA’s Advertising Content Rules NASD Rule 2210 (until Feb. 3, 2013), FINRA Rule 2210 (since Feb. 4, 2013), FINRA Rule 2010 and predecessor NASD Rule 2110 (through Dec. 14, 2008), as well as FINRA’s Supervision Rules FINRA Rule 3110 and predecessor NASD Rule 3010, FINRA claimed.
Between 2010 and 2017, PIMS earned about $12.6 million of revenue from retirement plans, according to FINRA. “At least 73,000 individual plan participants were invested annually in plans” with group VAs during the relevant period, FINRA said.
During that same time period, PIMS “misstated historical performance information for Group VAs on quarterly fund fact sheets relating to” about 70 separate investment options, according to FINRA. Also, in the 2,206 quarterly fund fact sheets published during the period, PIMS “often overstated or understated at least one of the historical performance metrics,” FINRA said. In all, almost 60% of the fund fact sheets contained inaccurate historical performance information, it said.
In signing the FINRA AWC letter, Prudential agreed to, among other things, retain at its own expense one or more qualified independent consultants approved by FINRA within 30 days to conduct a comprehensive review, as well as provide accurate and complete communications to plan participants and sponsors regarding the firm’s distributed investment options offered in its retirement plans, according to FINRA.