"AXAdental" Deception?

Equitable Faces The Music For Misleading Public School Employees

In a previous post, I speculated on what was then an upcoming settlement between Equitable (formerly AXA) and the Securities and Exchange Commission (SEC). My leading theory turned out to be correct. On July 18th, the SEC entered into a settlement agreement with Equitable for $50 million; you can find a copy of the agreement here (insert link). Equitable misled over 1.4 million variable annuity policyholders (who owned an Equi-Vest product) about how much in fees they were paying.

Equitable had a line item in several places on the customer statement labeled "Fees and Expenses." A reasonable person would conclude that ALL "fees and expenses" they pay would be represented; instead, it was less than 3%. In a word, this is stunning.

The SEC commented in their filing brief, "Though affirmatively presenting an apparently all-inclusive picture of fees and expenses to investors, Equitable's quarterly account statements actually detailed less than three percent of the revenue that Equitable received from the EQUI-VEST variable annuities."

It stretches the imagination that Equitable had no idea they were misleading by labeling something as "Fees and Expenses" and then not disclosing all fees and expenses. The labeling was not an innocent mistake. I think it was predatory behavior from a company that actively targets educators. To say that Equitable "AXAdentally" put this line item on their statement is cynical; it's my opinion that they believed they could get away with it…and they did, until they didn't.

The SEC demonstrated that Equitable knew its statements were misleading as early as 2016 when a school district advisory committee complained that the fees were unclear. It wasn't until May 2019 that Equitable agreed to make changes for that school district and finally implemented the change in the fourth quarter of 2021. They did not implement this change for the rest of the Equi-Vest policyholders until forced by the SEC.

It defies all logic to believe that no one at Equitable thought including a line item in multiple sections of a quarterly statement that says "Fees and Expenses," which didn't actually include all fees and expenses was misleading and or intentionally fraudulent.

Any lay person would look at that line item and think all expenses were included. I would take it one step further; even people in the financial services industry or accounting professionals would reasonably believe all fees and expenses were included.

Equitable's only possible explanations are that they are supremely incompetent or malevolent (I guess they could be both!).

Equitable's spokesperson made a statement about the settlement attempting to downplay it, saying, "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 is gaslighting you. Equitable is returning so much money to shareholders via dividends and stock buybacks the shareholders don't care to hold the company accountable. There is no middle ground here; either Equitable is inept, and those in charge should resign, or Equitable is malevolent, and those in charge should resign.

If there is doubt that Equitable is a first-class predator, the facts of this SEC settlement should put it to rest.

Equitable's shareholders are getting wealthy from the contributions of public school employees.

When we say The 403(b) is Broken at 403bwise.org, we are talking about companies like Equitable. My podcast partner and Executive Director of 403bwise, Dan Otter came up with the phrase "Equitable is Quitable," if you're a policyholder…you might want to reconsider.

The irony of the situation is that a school district attempting to control their 403(b) vendors brought this to Equitable's attention. It's precisely the lack of accountability within the vast majority of school districts that Equitable can continue to sell overpriced financial products to unsuspecting school employees. Employees win when school employers take control of their plans and force the companies they work with to disclose.

I do not believe this settlement will change Equitable's behavior or mindset. The only thing that will change Equitable's behavior is for school employees to stop using Equitable. When they begin to feel it in their pocketbook, they'll make a change; until that happens, buyer beware.

One more thing. You'd be wrong if you think everything is well now that Equitable has settled with the SEC and will disclose its fees. The settlement doesn't require Equitable to disclose its fees. It only needs them to change their statements to avoid misleading and then reference where policyholders can find the fees. There is no requirement to disclose fees down to the penny.

I do want to applaud the SEC for acting. The 403(b) world is a mess, and there are not many areas where the SEC can focus on cleaning it up. The SEC doesn't have jurisdiction over large portions of the 403(b) marketplace. While I would have preferred a larger settlement, and I would have preferred the company admitting they screwed up, I'm grateful for the work of the people at the SEC.

Till the next settlement…

Scott