Finra fines Prudential $1M over sloppy retirement-plan information

Regulator says flawed communications left plan participants in dark about investment costs

Finra fined Prudential Investment Management Services $1 million for sending inaccurate and incomplete information to retirement-plan participants that hindered their ability to choose investments, the regulator said in a settlement earlier this week.

In a Jan. 14 agreement with the Financial Industry Regulatory Authority Inc., Prudential accepted the fine and a censure but neither admitted nor denied Finra’s findings. Prudential also agreed to bring in an independent consultant to help it fix the problems Finra cited.

Between January 2010 and June 2017, Prudential provided retirement plan sponsors and participants inaccurate information about expense ratios and historical performance for investment options offered through a group variable annuity, Finra alleged.

Finra also alleged that between October 2003 and December 2018, Prudential provided inaccurate third-party ratings for the investments in the group VA and that between January 2004 and September 2019, Prudential omitted some information about money market fund investment options.

Finra said the firm lacked supervisory systems and procedures to ensure that the communications to plans and participants were reliable. The flawed information was disseminated to at least 73,000 plan participants.

“As a result, sponsors and participants using the inaccurate and/or incomplete communications that [Prudential] provided were not provided with information to enable them to correctly assess or compare the costs associated with different investment options, the historical performance, or the potential return of those investments,” the settlement states.

Prudential said it cooperated with Finra.

“Transparency, doing the right thing, and maintaining constructive relationships with regulators are foundational to how Prudential conducts business,” the company said in a statement. “Upon discovery of the issues following a FINRA inquiry, Prudential conducted a thorough review, reported its findings, and fully cooperated with FINRA. We have taken action to address the issues and are pleased to have this matter resolved.”

The case is another example of a regulatory focus on fees and expenses, said Barry Temkin, a partner at Mound Cotton Wollan & Greengrass, although in this instance, fraud was not alleged in conveying the performance information.

“It just seems like the regulators feel there’s a sloppiness about the communications about fees and performance,” Mr. Temkin said. “The message is they want the funds and the broker-dealers to step up their game a little bit and make sure their communications with the public are more accurate.”

Prudential Investment Management Services is the broker-dealer through which several Prudential Financial Inc. businesses sell securities products and offer broker services, according to the settlement. Prudential administers approximately 3,188 defined contribution retirement plans.

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