FINRA slams Fifth Third Securities with $6M in sanctions over variable annuity sales lapses
May 9, 2018 by Margarida Correia
Fifth Third Securities, the retail brokerage arm of Fifth Third Bank, has gotten into trouble with FINRA yet again over the sale of variable annuities.
The firm agreed to pay a $4 million fine and approximately $2 million in restitution to customers to settle charges that it failed to accurately describe the costs and benefits of exchanging variable annuities and that it recommended these exchanges without knowing if they were suitable, according to its agreement with FINRA.
The regulator faulted Fifth Third for not adequately training its registered reps and principals on how to conduct a comparative analysis of the material features of the variable annuities and not ensuring that they obtained accurate information concerning the exchanges they recommended. As a result, the firm misstated the costs and benefits of the exchanges, making them appear more beneficial to the customer, FINRA said.
In a sample of variable annuity exchanges that the firm approved from 2013 through 2015, roughly 77% misstated or omitted at least one material fact relating to the costs or benefits of the exchanges, according to FINRA’s findings.
The sample turned up instances, for example, where the firm failed to disclose that the existing variable annuity had an accrued living benefit value or understated the living benefit value, which the customer would forfeit upon executing the proposed exchange.
“FINRA remains vigilant in examining how member firms market variable annuities, which are complex products pitched to retirees an people saving for retirement,” Susan Schroeder, FINRA’s head of enforcement, said in a statement.
The regulator reprimanded the firm’s principals for approving about 92% of the variable annuity exchange applications submitted to them when it said the firm “did not have a reasonable basis to recommend and approve many of the transactions.”
Fifth Third agreed to settle the matter without admitting or denying the charges.
“The variable annuity business is not a large one for Fifth Third Securities. However, our customers should have access to variable annuities when they are appropriate and suitable investments for them,” said Larry Magnesen, a spokesman for Fifth Third, adding that the firm is committed to ensuring that it is in full compliance with all applicable regulations.
This is not Fifth Third’s first run-in with FINRA over variable annuity sales practices. In 2009, the firm was fined $1.75 for significant deficiencies related to its variable annuity business. The regulator found that the firm effected 250 unsuitable variable annuity exchanges and transactions from 2004 to 2006 and that it had inadequate systems and procedures governing the business.
The regulator pointed out that for more than four years following the 2009 settlement, Fifth Third failed to fully implement an independent consultant’s recommendation that it develop certain surveillance procedures to monitor variable annuity exchanges by registered reps.
“This puts this matter behind us and we can move forward with our business,” said Magnesen. “It resolves both an enforcement investigation as well as open points from a prior order.”
