Finra Fines Prudential Affiliate for Misstatements
January 16 2020 - 12:34PM
Dow Jones News
By Anne Tergesen
The Financial Industry Regulatory Authority, Wall Street's
self-regulatory arm, disclosed a $1 million fine against an
affiliate of Prudential Financial Inc. on Tuesday for providing
potentially thousands of workers in some of the retirement plans it
administers with inaccurate data on the cost and performance of
their investments.
The misstatements, which occurred over as many as two decades,
caused investment fees to be understated by as much as 50%,
compared to the total actual costs in some instances, according to
a settlement Finra entered into with Prudential Investment
Management Services LLC, a broker-dealer affiliated with the
Newark, N.J.-based insurer.
This created "the risk that sponsors and participants would make
investment decisions based" on inaccurate information, the
agreement said.
Inaccurate information "was contained in communications for at
least 73,000 retirement plan participants and hundreds of plan
sponsors annually" over several years, the settlement says.
The problems often occurred in retirement plans that included
variable annuities, which often are featured in 403(b) plans for
public-school teachers. These contracts typically combine
tax-advantaged mutual-fund investments with the opportunity for a
guaranteed pension-like lifetime income.
According to the settlement, Prudential provided both employers
and employees with inaccurate information from 2010 to 2017 on the
costs of "numerous investment options" in some of the nearly 3,200
retirement plans it administers.
On more than 35% of the quarterly mutual-fund fact sheets
Prudential published during that period, the company understated
some mutual-fund expense ratios by at least 50%, the settlement
says. Inaccurate fees were also found on employees' account
statements and plan websites, the settlement says.
Finra also found that Prudential misstated performance data on
nearly 60% of the quarterly mutual-fund fact sheets it issued from
2010 to 2017. Between 2003 and 2018, the company published ratings
-- from a separate company -- that corresponded to the wrong
investment options within some of its variable annuities.
In 2018, Finra levied $61 million in fines on 3,607 firms and
about 630,000 individual representatives of broker-dealers. The $1
million fine would have ranked in the top 10 for 2019.
In addition to the fine, the settlement requires Prudential to
hire a consultant to "conduct a comprehensive review" of things
including its supervisory system. The firm charged plan
participants the correct fees, so the settlement didn't require
payments to them.
Prudential, which didn't admit or deny the findings, said in an
emailed statement that it "fully cooperated with Finra" and took
"action to address the issues."
Write to Anne Tergesen at anne.tergesen@wsj.com
(END) Dow Jones Newswires
January 16, 2020 12:19 ET (17:19 GMT)
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