Record-Breaking FINRA Fines: Annuity Switching a Key Issue

Posted April 1, 2017 by robyn

Your brokerage account might be performing “okay” or even “well,” but that doesn’t mean the biggest Wall Street firms are behaving themselves. Indeed, the Financial Industry Regulatory Authority (FINRA) issued more fines for regulatory infractions than ever in 2016. The biggest fine was for annuity switching.

Last year, FINRA fined brokerage firms and their stockbrokers a total of $176 million. That figure breaks FINRA’s past record of $134 million in 2014.

The new record in fines was mostly the result of FINRA increasing the number of supersized, million-dollar fines it issued. The million-dollar-sized fines totaled over $137 million in 2016. Meanwhile, extra-large fines of over $5 million-plus also increased.

These bigger fines totaled about $89 million last year.

The Biggest Fine of 2016 Involved Annuity Switching

MetLife Securities paid out the biggest fine of 2016. It was a $20 million-dollar punishment for the financial giant’s negligent misrepresentations and omissions concerning replacement variable annuities it sold to customers. Essentially, MetLife misled customers into buying unsuitable variable annuities that weren’t in their best interests.

Replacement annuities, or “annuity switching,” is a huge problem — especially for older investors due to the enormous fees and illiquidity associated with these products.  In fact, variable annuities represented one of the biggest regulatory challenges of 2016 for FINRA. Last year alone, just 30 variable annuity cases resulted in $30.3 million worth of FINRA fines. This represents a considerable increase compared 2015’s 25 variable annuity cases, which resulted in $10.4 million in fines.

A Good Year for Fines, but Not for Restitution

Although regulatory fines broke records in 2016, the restitution of investors by FINRA declined dramatically. 2016 only saw about $26 million in restitution paid to injured investors. This is 71 percent lower than 2015, which saw $96 million in restitution awarded to brokerage customers.

Did you Suffer Suspicious Investment Losses?

If your investment account has declined in value considerably in recent years — but you don’t know why — it’s possible that you were the victim of investment fraud or stockbroker negligence. Regardless what happened, you could benefit from talking with an investment negligence advisor at the Consumer Investor Resource Center. Call us today, and we’ll advise you of your legal rights and options.