The Financial Industry Regulatory Authority Inc. has fined Fifth Third Securities $4 million and ordered it to pay approximately $2 million in restitution to customers for "failing to appropriately consider and accurately describe the costs and benefits of variable annuity exchanges," Finra said in a release.
In what it described as its "second significant enforcement action against Fifth Third involving its sale of variable annuities, Finra said the firm recommended VA exchanges without a reasonable basis to believe the exchanges were suitable.
Finra found that Fifth Third failed to ensure that its brokers "obtained and assessed accurate information concerning the recommended VA exchanges." It also found that brokers and principals were inadequately trained in how to compare material features of VAs. As a result, Finra said, the firm misstated the costs and benefits of exchanges, making the exchange appear more beneficial to the customer.
In a review of a sample of VA exchanges that the firm approved from 2013 through 2015, Finra 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% of the sample." Many of the misstatements concerned policy riders.
Despite the errors, Finra found that the firm's principals ultimately approved approximately 92% of VA exchange applications submitted to them for review.
In 2009, Fifth Third reached a settlement with Finra over 250 unsuitable VA exchanges and transactions and a finding that the firm's systems and procedures regarding VA exchanges were inadequate.
"For more than four years following the settlement, the firm failed to fully implement an independent consultant's recommendation that it develop certain surveillance procedures to monitor VA exchanges by individual registered representatives," Finra said.