FINRA has fined MetLife Securities $20 million for making negligent material misrepresentations and omissions on variable annuity replacement applications involving tens of thousands of customers. The firm has also agreed to pay $5 million to customers.
Investigation findings. According to a FINRA news release, the $20 million sanction represents the largest ever FINRA fine relating to variable annuities. The settlement with the firm follows an investigation which found that between 2009 and 2014, MetLife Securities (MSI), a wholly owned subsidiary of Met Life Inc., misrepresented or omitted at least one material fact relating to the costs and guarantees of existing VA contracts in 72 percent of the 35,500 replacement applications the firm approved.
According to FINRA, MSI represented to customers that their existing VA was more expensive than the recommended VA, when in fact, the existing VA was less expensive. MSI failed to disclose to customers that the proposed VA replacement would reduce or eliminate important features of their existing VA, such as accrued death benefits, guaranteed income benefits, and a guaranteed fixed interest account rider. In addition, FINRA said, the firm understated the value of customers’ existing death benefits in disclosures mandated by New York’s Regulation 60.
Registered representatives were required to complete a replacement application for all VA replacements. The paperwork included a disclosure section where the firm disclosed the comparative cost and guarantee information about the existing and proposed contracts.
Training and supervision deficiencies. FINRA also found that MSI failed to ensure that its registered representatives obtained and assessed information concerning the recommended VA replacements. FINRA found that the firm did not adequately train its registered representatives to compare the costs and guarantees involved in replacing one VA with another. FINRA said that the firm’s principals, when reviewing the VA replacement transactions, approved 99 percent of the applications submitted for review, even though FINRA found that 75 percent of the applications contained materially inaccurate information.
FINRA also said that the firm failed to supervise sales of the guaranteed minimum income benefit (GMIB) rider, which was marketed to customers as a means of providing a guaranteed future income stream. MSI failed to provide registered representative and principals with reasonable guidance or training about the cost and features of the rider, according to FINRA.
MSI also provided customers with misleading quarterly account statements that understated the total charges and fees incurred in certain VA contracts, according to FINRA. Typically, the quarterly account statements misrepresented that the customer incurred no fees or charges, when, in fact, the customer paid “substantial” fees and charges, FINRA said.
In settling the matter, the firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
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