FINRA Head: VAs Remain Enforcement Target

WASHINGTON, D.C. - Variable annuities took a hit when they were added to the restrictive Best Interest Contract Exemption within the Department of Labor's fiduciary rule.

But that doesn't mean regulators are going to ease up on the controversial product, said James E. Day, associate vice president and chief counsel of the enforcement department at the Financial Industry Regulatory Authority.

Day spoke Monday as part of a panel on enforcement at the Insured Retirement Institute's Government, Legal and Regulatory Conference 2016.

"Variable annuities remain a key part of our enforcement program," Day said. "(There is a) lack of understanding about the product, really from the broker level right on up."

The DOL fiduciary rule requires that VA sales satisfy the BIC exemption, which means hefty disclosures and a contract between advisors and clients.

Day discussed the recent $25 million fine FINRA levied against MetLife for VA sales issues. Announced last month, it is the largest fine FINRA has ever handed down for an infraction involving VAs.

MetLife represented to customers that their existing variable annuity was more expensive than the recommended investment, when in fact the existing one was less expensive, Day said.

The products generated at least $152 million in gross dealer commission for the firm over a six-year period, according to FINRA. Regulators found that from 2009 through 2014, the company misrepresented or omitted at least one material fact relating to the costs and guarantees of customers' existing annuity contracts in 72 percent of the 35,500 VA replacement applications it approved, Day said.

MetLife neither admitted nor denied the charges, but consented to the entry of FINRA's findings, officials said.

Marc Wyatt, director of the Office of Compliance Inspections and Examinations for the Securities and Exchange Commission, joined Day on the panel. The SEC enforcement division wants to inform about policy, Wyatt stressed, not make it.

"If there's a question with a rule, we'll go out and talk to the person who wrote the rule," he said. "We are not trying to make policy through our examinations."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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