MetLife Switched Tens of Thousands of Savers Into Worse Annuities, According to FINRA

By on May 13, 2016

Annuities are a popular savings and retirement product that returns an income stream in return for premium payments.

On May 3, 2016, the Financial Industry Regulatory Authority announced a settlement with MetLife Securities for allegedly tricking over 35,000 MetLife annuity customers into switching out of their existing annuities into new annuities that were not as good for the customers, all without proper disclosure.

According to FINRA, MetLife’s scheme generated $152 million in commissions from unsuspecting customers (on top of the commissions generated on the original annuity) for the privilege of buying annuities that, for many, were worse than what they already owned.  MetLife accomplished this by misrepresenting the benefits and omitting the costs and other negatives of the replacement annuities. According to FINRA:

  • MetLife misrepresented to 30% of its customers that the new annuity was more expensive than their existing one;
  • MetLife didn’t tell 21% of customers that any accrued death benefit would be forfeited;
  • MetLife failed to disclose to 11% of customers that switching annuities would forfeit a valuable accrued guaranteed income stream;
  • MetLife failed to disclose to 41% of customers that by switching, they were giving up the option to invest the annuity in a guaranteed Fixed Interest Account that in some cases guaranteed interest as high as 4%. None of the new annuities had this option. This benefits MetLife at the expense of its customers.
  • MetLife misrepresented the guaranteed death benefit on existing annuities, by understating the future value the existing guaranteed death benefit. This made the existing policies seem worse than they were, in an effort to push customers into new annuities.

FINRA fined MetLife $20 million (which goes to FINRA), and requested it to make compensation payments of a much smaller maximum amount of $5 million to customers. FINRA did not say  whether the $5 million is enough to compensate the customers.