Variable annuity leader Met Life fined
Go figure! In our last blog on variable annuities “how do variable annuities work?” I talked about some problems with them and why we don’t generally recommend or sell them. Recent news shows some support for my thoughts as variable annuity leader Met Life was fined 20 million dollars for misleading customers.
With the recent DOL fiduciary rule finally completed, it’s only reasonable to expect FINRA to really crack down on these product sales. Variable annuities are highly complex insurance products, and most investors just don’t understand them! Most financial advisors who sell them don’t understand them either. We’ve had clients pay us hourly rates to build massive spreadsheets to illustrate how they really work in good and bad markets.
The highest ever industry penalty assessed to a variable annuity leader, Met Life
The 25 million in fines and investor settlement represents the highest ever penalty from FINRA – the Financial Industry Regulatory Authority. In November of 2015 Scottrade settled for 2.6 million for failing to require electronic records and emails properly. FINRA has been pretty busy lately, recording 1,397 disciplinary actions in 2014 (down a bit from the 1,535 prosecuted in 2013).
Variable annuity negligence
The Met Life settlement alleged “negligent” misrepresentation and omission. Apparently their financial advisors weren’t properly explaining the costs and benefits of these complex products. So often the sales reps gloss over the shiny material only hitting the highlights which are positive, and not thoroughly explaining the potential pitfalls with variable annuities.
According the the Investment News article, from 2009 to 2014 the company misrepresented or omitted at least one material fact in over 70% of the 35,000 variable annuity replacement applications. To put this in simple terms, if a financial advisor is going to replace one insurance based product with another they have to complete an additional form. This form should clearly illustrate the current fees and the proposed fees, surrender charges and more! This should allow the investor to see what they’re giving up and what it’s going to cost them.
Those were the facts it appears were inaccurate over 70% of the time. So the majority of investors weren’t aware of the true implications of making the switch from one variable annuity product to another. Most of this revolves around the fees and charges associated with the old and new variable annuities.