Finra Fines Prudential Affiliate for Misstatements

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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