The Financial Industry Regulatory Authority (FINRA) recently announced that it has fined MetLife Securities, Inc. (MSI) $20 million and ordered it to pay $5 million to customers for making negligent material misrepresentations and omissions on variable annuity replacement applications for tens of thousands of customers. Each misrepresentation and omission allegedly made the replacement appear more beneficial to the customer, even though the recommended variable annuities were typically more expensive than customers’ existing variable annuities. MetLife Securities’ variable annuity 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.
Replacing one variable annuity with another involves a comparison of the complex features of each security. Accordingly, variable annuity replacements are subject to regulatory requirements to ensure a firm and its registered representatives compare costs and guarantees that are complete and accurate.
According to FINRA’s announcement, FINRA found that from 2009 through 2014, MetLife Securities misrepresented or omitted at least one material fact relating to the costs and guarantees of customers’ existing variable annuity contracts in 72 percent of the 35,500 variable annuity replacement applications the firm approved, based on a sample of randomly selected transactions. For example,
- MetLife Securities allegedly represented to customers that their existing variable annuity was more expensive than the recommended variable annuity, when in fact, the existing variable annuity was less expensive;
- MetLife Securities allegedly failed to disclose to customers that the proposed variable annuity replacement would reduce or eliminate important features in their existing variable annuity, such as accrued death benefits, guaranteed income benefits, and a guaranteed fixed interest account rider; and,
- MetLife Securities allegedly understated the value of customers’ existing death benefits.
FINRA also found that MetLife Securities failed to ensure that its registered representatives obtained and assessed accurate information concerning the recommended variable annuity replacements, and did not adequately train its registered representatives to compare the relative costs and guarantees involved in replacing one variable annuity with another.
Finally, FINRA further found that MetLife Securities allegedly failed to supervise sales of the GMIB rider, the firm’s bestselling feature for its variable annuities. The rider was marketed to customers (many of whom were already holding MetLife annuities) as a means of providing a guaranteed future income stream. The GMIB rider is complex and expensive.
In settling this matter, MSI neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
The White Law Group is investigating potential FINRA arbitration claims involving MetLife Securities’ sales of variable annuities. If you believe MetLife Securities misrepresented the features of a variable annuity sold to you and would like to discuss your litigation options, please call the firm at 888-637-5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida. For more information on the firm, visit http://www.whitesecuritieslaw.com.