MetLife Securities, Inc. has agreed to pay a penalty of $25 million to the Financial Industry Regulatory Authority (FINRA) to settle FINRA’s investigation into MetLife’s sales of variable annuities to tens of thousands of investors. The sum includes a fine of $20 million plus $5 million to customers “for making negligent material misrepresentations and omissions” in the sale of replacement variable annuities to MetLife customers. This is the second largest fine ever assessed by FINRA.
Variable annuities are complex investment products. FINRA charged that MeLife’s salespeople failed to help its customers properly compare old and new versions of the annuities, leading some people to change to a newer version of the annuity that was more expensive and less customer generous than the older version. Each sale of a new product typically includes a commission of 5% to 7%, something that encourages sales of newer annuities.
FINRA looked through 35,500 replacement applications made to MetLife and found that 72% of them “misrepresented or omitted at least one material fact” relating to the costs and guarantees of customers' existing variable annuity contracts. Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said that "Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning. 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."
MetLife sold at least $3 billion worth of variable annuities through replacements between 2009 and 2014. Insurers began to change their variable annuity contracts after the stock market decline in 2008 revealed the financial risks they faced in offering extremely generous benefits to investors.
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