MetLife to Pay $25 Million Finra Penalty Over Variable Annuities -- Update
May 03 2016 - 10:06AM
Dow Jones News
By Aruna Viswanatha
MetLife Inc. agreed to pay $25 million for allegedly misleading
customers about retirement-income products, regulators said
Tuesday, in one of the largest such settlements to date.
The insurer's MetLife Securities Inc. unit "made negligent
misrepresentations and omissions to customers" when replacing their
variable annuities between 2009 and 2014, making them seem better
for the customers than they actual were, the Financial Industry
Regulatory Authority said.
MetLife neither admitted nor denied the Wall Street watchdog's
findings, according to the settlement. In a statement, MetLife said
it "fully cooperated with the FINRA investigation."
Variable annuities are products popular with older, risk-averse
investors that offer tax advantages to invest in stock and bond
funds. For an added fee at many insurers, investors can receive
lifetime payments of a guaranteed-minimum amount even if the
underlying funds perform poorly.
The regulator said the settlement, which includes a $20 million
fine and $5 million to reimburse customers, is the second largest
fine it has ever levied. The largest, a $50 million penalty against
Credit Suisse First Boston Corp. over allegedly inflated
commissions for hot initial public offerings, came in 2002.
According to the Tuesday settlement, MetLife sometimes
overstated the cost of a customer's existing variable annuity
contract, which in some instances increased a customer's cost by 2%
annually. The firm also sometimes failed to tell customers a
proposed replacement would reduce or eliminate features of their
existing variable annuity, Finra said.
"Variable annuities are complex and expensive products that are
routinely pitched to vulnerable investors as a key component of
their retirement planning," Finra enforcement chief Brad Bennett
said. "Firms engaging in this business must ensure that the
information on the costs and benefits of these products provided to
customers is accurate."
MetLife sold at least $3 billion in variable annuities between
2009 and 2014, and made $152 million in commissions off the
products, Finra said. It didn't have an "adequate supervisory
structure" that made sure brokers had accurate information about
the replacement products, the regulator said.
Before recommending a customer replace a variable annuity,
brokers are required to make sure the recommendation is suitable
for the customer and compare it with the customer's existing
contracts.
In November, MetLife had warned it may face a "significant fine"
from Finra over the issue. The insurer is in the process of selling
its retail business, including MetLife Securities, as part of a
larger effort to slim down and respond to a shifting regulatory
environment.
A new rule from the Labor Department requires advisers working
with retirement accounts to act as fiduciaries, putting their
clients' interest first.
Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
May 03, 2016 10:51 ET (14:51 GMT)
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