Details are scarce about what exactly went wrong when MetLifes securities arm, New England Securities Corp., failed to rebalance asset allocations for 6,000 mutual fund accounts according to their risk profiles. The company estimates that some $3 million to $11 million evaporated from those accounts as a result losses it plans to repay.
The SEC, which was informed of the errors back in March by MetLife, recently launched a formal investigation into the matter, according to a report last Wednesday by MetLife. The SEC did not confirm or deny whether it is pursuing this particular investigation and declined to comment.
Industry experts pointed the finger at investment advisers who, they say, often don't understand how to use the asset allocation software designed to rebalance portfolios. Still, few had heard of other cases where such widespread errors occurred all at once. Meanwhile, several MetLife planners said they do not do asset allocation for their clients and were not even aware of the glitch.
"The software is only as good as the people using it. A lot of human intervention is required," said Eric Eisf, president of OptimizeUSA, Inc. in Miami, Fla., which markets asset allocation software, but doesnt do any business with MetLife. "People look at it at as a black box, but its like giving a monkey a razor blade," Eisf said. "Some people have a real problem understanding how to use it, especially at a big organization like MetLife, where its hard to get people up the curve in terms of a minimum level of proficiency."