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MetLife Securities, Inc., headquartered in New York, New York, was censured and fined $20,000,000.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm made negligent omissions and misrepresentations concerning annuity products, and failed to supervise annuity transactions. Letter of Acceptance, Waiver and Consent, No. 20140408700001 (May 3, 2016).
According to the AWC, MetLife had negligently omitted and/or misrepresented various material facts pertaining to guarantees and costs regarding the firm’s clients’ variable annuities at other firms. Apparently, of the thirty-five thousand and five hundred applications for replacement of variable annuities (for transfer of annuities at other firms to annuities through MetLife), seventy-two percent contained at least one omission or misrepresentation.
In the thousands of instances, MetLife consistently undervalued customers’ existing annuity contracts that were held at other carriers, leading customers to conclude that proposed MetLife variable annuities would provide a more favorable benefit to the customers’ than the existing products. The AWC stated that MetLife specifically misrepresented the guarantees and costs associated with the customers’ existing products.
FINRA found that MetLife’s misrepresentations in this regard were violative of FINRA Rule 2010. In addition, MetLife was found to have violated FINRA Rules 2330(b) and NASD Rule 2821(b) in connection with recommending the customers’ replace annuities without confirming whether accurate information was relayed to customers pertaining to features/benefits of existing and proposed variable annuity contracts.
The AWC further indicated that thirty percent of the time, investors were informed by the firm’s representatives that their existing variable annuities were more expensive than the proposed MetLife products. Apparently, unlike what customers were led to believe by MetLife’s personnel, customers’ would pay an additional two percent in costs per year in MetLife’s products compared with their existing annuities.
According to the AWC, the firm’s representatives were tasked with informing prospective customers about guarantees that customers would be giving up in replacing annuities with MetLife’s prospective products. However, the firm’s representatives failed to discuss such information. The AWC stated that in twenty-one percent of cases, the firm’s representatives failed to inform investors about foregoing death benefits in existing policies which carried greater values than the customers’ existing contract values.
In other circumstances, the firm’s representatives did not disclose to customers that their existing guarantees associated with income (guaranteed minimum income riders) would be forfeited or transferred into a proposed variable annuity product whose income rider would carry greater costs. In forty-one percent of cases, according to the AWC, the firm’s representatives did not disclose to investors that they would be forfeiting their ability to invest with a fixed guaranteed rate by switching into the proposed variable annuity products.
The AWC further stated that the firm’s representatives misrepresented the customers’ death benefit values associated with existing annuities. Apparently, the firms’ representatives failed to take into account when death benefit values would receive a step up in value, locking in a higher death benefit for customers. With customers’ not being made aware of the projected values of their death benefits on existing annuities, FIRNA stated that customers’ were led to believe proposed variable annuity products were more attractive.
FINRA found that the firm failed to have adequate supervisory practices and procedures concerning the assessment of accurate details about prospective customers’ existing annuity products. FINRA found that the firm failed to have practices which would ensure that the representatives would accurately state guarantees and costs on customers’ variable annuity replacement applications. The firm also apparently failed to have practices to ensure that the replacement forms contained accurate information, leading seventy-two percent of such application forms to contain inaccurate information.
FINRA additionally found that the firm failed to have practices and procedures to ensure that the firm principals were evaluating registered representatives’ explanations for customers’ replacement of the annuity products. Apparently, the principals denied less than one quarter of one percent of annuity applications.
Further, the AWC stated that the firm failed to have adequate training and guidance with respect to the guaranteed minimum income benefit rider, which was apparently the firm’s top selling feature for proposed variable annuity products. FINRA found that certain representatives did not comprehend the fees or costs pertaining to the rider, as well as annuitization features. FINRA found the firm’s supervisory failures were violative of FINRA Rules 2010, 3110(a), 3110(b), 2330(d), and NASD Rules 3010(a), 3010(b), and 2821(d) and (e).
Finally, the AWC stated that since 2009, MetLife misrepresented statements sent to customers on a quarterly basis regarding the costs associated with their variable annuity products. Apparently, the charges and fees, such as mortality and expense charges and administrative fees, were not reflected in the customers’ total charges and fees section of their statements. In certain cases, according to the AWC, customers were informed that there were no charges and fees on statements, when customers actually were paying significant charges and fees. FINRA found that the firm violated FINRA Rule 2010 in this regard.
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