Self-regulator Finra has fined Fifth Third Securities, Inc. $4 million and ordered it to pay back customers $2 million in restitution for alleged disclosure failures related to variable annuity exchanges, the industry body says in a press release.
The company allegedly recommended the exchanges with little basis to believe them to be suitable and didn’t accurately tell customers about their costs and benefits, according to the press release. Fifth Third also allegedly failed to ensure its representatives properly obtained and assessed information on the exchanges and didn’t adequately train them to compare various options, Finra says.
This led to costs and benefits being frequently misstated. In a sample of variable annuity exchanges Fifth Third approved from 2013 through 2015, Finra found around 77% had at least one omitted or misstated material fact, according to the press release. This included overstating total fees of existing variable annuities or misstating fees tied to additional options such as riders, understating or failing to disclose the existence of an accrued living benefit value clients would lose on getting out of the annuity, and telling clients a proposed variable annuity had a living benefit rider when in fact it didn’t, Finra says.
Despite various misstatements and omissions, Fifth Third’s principals approved 92% of variable annuity exchange applications, according to the regulator. The firm neither admitted nor denied the charges in consenting to Finra’s findings as part of the settlement, Finra says.
This is the second major run-in for Fifth Third with Finra over variable annuities. In 2009, Finra found that from 2004 to 2006 the company effected 250 variable exchanges and transactions that were unsuitable to its clients, according to the regulator.
As part of the latest sanction, Finra also ruled that Fifth Third failed to comply with the 2009 settlement, according to the press release. For four years following the settlement the company failed to put in place recommendations by an independent consultant to improve its surveillance of variable annuities, Finra says.