The Financial Industry Regulatory Authority (“FINRA”) has fined MetLife $20 million for unsuitable and misleading recommendations it made to investors to induce them to swap their existing variable annuity contracts into other, more expensive, variable annuities. This practice generated high profits for MetLife and commissions for its brokers without any benefits to the investors. The $20 million fine, the largest ever levied by FINRA for wrongful variable annuities sales practices, included $5 million for “making negligent misrepresentations and omissions” in the swaps of the annuity products.
The incentive for this type of transaction lies in the extremely high commissions brokers make when selling and swapping variable annuities. According to Carlo di Florio, FINRA’s chief risk officer and head of strategy, variable annuities have become a rising source of investor frustration due inadequate disclosures, annuity surrender rules, and a rise in predatory sales practices. FINRA lists annuity products as their third most common source of investor complaints.
The most often highlighted sales-pitch features of an annuity – death benefits and tax advantages – are only suitable for a narrow band of investors who are not already getting those benefits elsewhere. Those with adequate life insurance or who are already investing in an account with tax advantages (such as an IRA or 401(k)), will gain nothing from these “benefits,” while still being exposed to the risks and disproportionately high costs of the underlying investment. In fact, the high costs of an annuity will leave most investors needing to make a significant gain on the underlying investment just to break even on their principal investment over the life of the annuity.
If you believe you have been sold an annuity that was not suitable for you or if feel you were sold a product that was either misrepresented or not fully explained to you by your broker, please contact Burke Harvey.