Prudential Investment Management Services (Pims) has agreed to pay a $1m (£769,354, €901,560) fine to the Financial Industry Regulatory Authority (Finra) for sending the wrong information to retirement plans members.
This hindered clients’ ability to choose their investments, Finra said.
Prudential accepted the fine and censure but, as this was a settlement, it did not confirm nor deny the regulator’s allegations.
It did agree, however, to hire an independent consultant to look into and fix the issue brought forward by Finra.
Years of wrong information
The case encompasses thousands of defined contribution retirement plans, some of which offer group variable annuities.
Finra said: “During at least the period January 2010 through June 2017, Pims disseminated inaccurate information about group variable annuities (GVAs) expense ratios and inaccurate historical performance information about investment options offered in [GVAs].
“Additionally, from at least October 2003 to December 2018, Pims disseminated or made available inaccurate information about the third-party ratings for mutual funds underlying those investment options.
“The inaccurate information included material inaccuracies and was contained in communications for at least 73,000 retirement plan participants and hundreds of plan sponsors annually.
“Finally, from at least January 2004 to September 2019, Pims disclosed performance data of money market fund investment options, in certain types of client-facing communications, but omitted information regarding those funds’ ‘seven-day yield’ – a dynamic calculation of distributions paid by the funds plus any appreciation over a seven-day period, minus average fees incurred over such period,” the regulator added.
This resulted in both sponsors and participants not being able to compare options and costs and make the right investment decisions, as they were given either inaccurate or incomplete information.
Prudential charged the right fees, included accurate performance returns and account values in its statements, and disclosed minimum and maximum expenses in its prospectuses; but it was still found to have put its clients at risk.
The independent consultant will have 120 days to review and create a report on the issue, which will then be submitted to Finra.
Pims will have 60 days from when the regulator receives the report to implement any recommendations the independent consultant makes.
If Prudential believes such recommendations not to be applicable, it can propose alternatives, as long as they achieve the same objective, the regulator added.