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Fifth Third Securities to Pay $6 Million for Improper Disclosures and Unsuitable Investment Advice

July 23, 2018 Blog

The Financial Industry Regulatory Authority (FINRA) recently announced that Fifth Third Securities has agreed to pay $6 million in fines and restitution for disclosure violations and fraudulent investment recommendations. While consenting to the entry of FINRA’s findings, Fifth Third Securities neither admitted nor denied the charges against it. According to FINRA, Fifth Third Securities:

“[Failed] to appropriately consider and accurately describe the costs and benefits of variable annuity (VA) 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.”

Specific Findings Against Fifth Third Securities

The majority of the charges against Fifth Third Securities stemmed from its sale of variable annuities in “variable annuity exchange” transactions. These transactions involve selling one variable annuity in order to purchase another; and, due to the risks involved, “brokers [must] have a reasonable basis to recommend them, and their supervisors [must] have a reasonable basis to approve the sales.” However, in ordering Fifth Third Securities to pay $4 million in fines and $2 million in restitution, FINRA concluded that the firm:

  • Failed to ensure that its brokers obtained accurate information regarding variable annuity exchanges they recommended to the firm’s clients;
  • Failed to ensure that its brokers and principals received adequate training on assessing the benefits and risks of variable annuities;
  • Misstated the costs and benefits of variable annuity exchanges, “making the exchange[s] appear more beneficial to the customer” in approximately 77 percent of cases; and,
  • Approved approximately 92 percent of variable annuity exchange applications despite not having a reasonable basis to recommend or approve the transactions.

With regard to the misstated costs and benefits, FINRA determined that Fifth Third Securities:

  • Overstated the fees associated with customers’ existing variable annuities;
  • Misrepresented the fees associated with optional benefits (“riders”) for newly-purchased variable annuities;
  • Failed to inform customers that their existing variable annuities had accrued living benefit value that would be forfeited as the result of an exchange; and,
  • Misrepresented that newly-purchased variable annuities included living benefit riders.

Have You Lost Money in a Variable Annuity Exchange?

Variable annuities are complex investment products, and variable annuity exchanges present a number of complicated risks for individual investors. If you are relying on variable annuities for your retirement income or have invested in variable annuities for other purposes, it is important to make sure that you – and your broker or investment advisor – are aware of the unique risks involved. If you lost money as a result of a variable annuity exchange recommended by a broker or your investment advisor, you may be entitled to compensation for fraud, and you should speak with an attorney as soon as possible.

Speak With an Investment Fraud Attorney in Confidence

Have you suffered investment losses due to a variable annuity exchange or another transaction that you did not fully understand? If so, we encourage you to contact us for a free and confidential consultation. To learn about the options you have available, please call (212) 742-1414 or send us a message online today.