The Financial Industry Regulatory Authority Inc. has fined Fifth Third Securities Inc. $4 million and required the firm to pay approximately $2 million in restitution to customers for variable annuity exchange violations.
FINRA claims that Fifth Third Securities failed to “appropriately consider and accurately describe the costs and benefits of variable annuity exchanges, and recommended exchanges without a reasonable basis to believe the exchanges were suitable.”
This is the second significant FINRA enforcement action against Fifth Third involving the firm’s sale of variable annuities. In 2009, FINRA fined the firm nearly $1.8 million for unsuitable VA exchange transactions. FINRA claims that Fifth Third failed to comply with a term of its 2009 settlement and took this into consideration when determining the substantial fine.
“Variable annuities are complex investments commonly marketed and sold to retirees or people saving for retirement. Exchanging one VA with another involves a comparison of the complex features of each security,” said FINRA. “Accordingly, these exchanges are subject to regulatory requirements to ensure that brokers have a reasonable basis to recommend them, and their supervisors have a reasonable basis to approve the sales.”
FINRA claims that Fifth Third’s registered representatives and principals were not adequately trained on how to conduct a comparative analysis of the material features of the variable annuities and often misstated the costs and benefits of exchanges, making the exchange appear more beneficial to the customer.
FINRA reviewed a sample of VA exchanges that the firm approved from 2013 through 2015 and found that Fifth Third misstated or omitted at least one material fact relating to the costs or benefits of the VA exchange in approximately 77 percent of the sample.
Additionally, the regulators found that the firm’s principals approved approximately 92 percent of VA exchange applications submitted to them for review.
In settling this matter, Fifth Third neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.