‘Educators Are Angry’: Equitable’s $50M Penalty Points to Wider 403(b) Problems

What You Need to Know

  • Equitable was fined for sending misleading fee statements to 1.4 million investors, mainly teachers.
  • An SEC sweep involving 403(b) plans is ongoing.
  • An advisor said he was disappointed with the $50 million settlement and Equitable’s lack of an apology.

The fraud charges announced July 18 against Equitable Financial Life Insurance Co. for providing misleading account statements to about 1.4 million variable annuity investors, mainly teachers and school staff, should serve as a “wake-up call” that many financial services companies are not serving educators’ best interests, an advisor says.

“Equitable had hoped that this would be a quick news story and then go away, but educators are angry and they should be,” Scott Dauenhauer, principal and owner of Meridian Wealth Management in California, who writes the Teacher’s Advocate Blog, told ThinkAdvisor Wednesday in an email.

Equitable agreed to pay $50 million to harmed investors, most of whom are public school teachers and staff members, to settle the charges.

Since at least 2016, Equitable gave investors the false impression that their quarterly account statements listed all fees paid during the period, according to the SEC’s order.

Most of the investors who received the account statements are teachers or other employees of kindergarten-through-12th-grade public school districts, who invest in Equitable’s proprietary “EQUI-VEST” variable annuities within a 403(b) or 457(b) defined contribution retirement plan, the order states.

In a statement shared with ThinkAdvisor Wednesday, Equitable said: “We didn’t live up to our own high standards and our clients expect more from us. We are committed to learning from this, continuously enhancing our clients’ experience, and always providing clear and transparent communications.”

Equitable’s CEO “couldn’t be bothered evidently for an apology,” Dauenhauer said, “instead Equitable won’t even admit they did anything wrong (per the settlement) and their spokesperson thinks the appropriate response is gaslighting. Equitable didn’t apologize, instead they committed to ‘learning from this.'”

Equitable “would have us believe that they were completely unaware that a statement that has line items that say ‘Fees and Expenses’ would not be construed to include…all Fees and Expenses. This is professional gaslighting,” Dauenhauer said.

Only two options exist, according to Dauenhauer:

“Equitable knew their statements were misleading and believed they could get away with it, which makes them malevolent, or Equitable didn’t know their statements were misleading which makes them supremely incompetent.”

Either way, “someone should pay for this with their job (or perhaps the entire leadership team),” he said. “Educators deserve better.”

The “irony of the settlement is that disclosure won’t improve, educators STILL will not know what they are paying to Equitable in total,” Dauenhauer continued.

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