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Metlife

MetLife hit with $25 million penalty for misleading retirement clients

Adam Shell
USA TODAY

A securities industry regulator said Tuesday that MetLife had agreed to pay $25 million in penalties for allegedly misleading its customers about a type of retirement investment that provides an income stream for life, a settlement the regulator said was the second-largest it has ever assessed.

The regulator, Financial Industry Regulatory Authority, or FINRA, said the insurer's MetLife Securities (MSI) unit made "negligent material misrepresentations and omissions on variable annuity replacement applications for tens of thousands of customers" between 2009 and 2014. In that five-year time frame, more than 70% of the 35,500 replacement variable annuities that were approved by MSI "misrepresented or omitted one material fact," according to FINRA.

MetLife agreed to pay a $20 million fine and pay $5 million to customers harmed.

In a statement, MetLife said: "MetLife fully cooperated with the FINRA investigation and we are pleased to put this matter behind us." MetLIfe also said it has already set aside reserves to pay the penalty. In settling this matter, MSI neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

Variable annuities are investment products that allow people to invest in stocks and bonds, with the initial investment and gains able to grow tax deferred, with regular income payouts to the investor at a later date, usually on a monthly basis.

FINRA claims MetLIfe Securities pitched the replacement variable annuities as better products. But FINRA claims that was a "misrepresentation," as the replacement products were actually more expensive (i.e. came with higher fees) than the client's initial annuities.

MSI's variable 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, according to FINRA.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, "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."

FINRA claims MSI told customers that their existing variable annuities were more expensive than the replacement product being recommended, which was not true. MSI allegedly also did not disclose to investors that the proposed replacement variable annuity would "reduce or eliminate" features in their existing variable annuity, such as "accrued death benefits, guaranteed income benefits, and a guaranteed fixed interest account rider." FINRA also said MSI understated the value of customer's existing death benefits.

The $25 million settlement with MSI represents the second-largest FINRA fine ever. The biggest was a $50 million settlement with Credit Suisse First Boston in 2002 involving inflated commissions on initial public offerings, FINRA said.

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