WASHINGTON–(BUSINESS WIRE)– The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Houston-based VALIC Financial Advisors, Inc. (VFA), a total of $1.75 million for failing to identify and reasonably address certain conflicts of interest in the firm’s compensation policy for instances when customers elected to move assets out of their VALIC variable annuities (VA), many of which were held in retirement plan accounts. The firm also failed to adequately supervise its VA business, including the sale of VAs with multiple share classes.
FINRA found that VFA failed to have a reasonable system to address and review the conflict of interest created by its compensation policy. From October 2011 through October 2014, VFA created a conflict of interest by providing registered representatives a financial incentive to recommend that customers move their funds from VALIC variable annuities to the firm’s fee-based platform or into a VALIC fixed index annuity. VFA further incentivized the conflict by prohibiting its registered representatives from receiving compensation when moving customer funds from a VALIC VA to non-VALIC VAs, mutual funds or other non-VALIC products. During 2012 and 2013, FINRA found there was significant volume of assets moving from VALIC VAs to the advisory platform. Also, in a seven-month period after the compensation policy was amended to include the proprietary fixed index annuity, sales of that product grew more than 610 percent.
Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “The conflict of interest inherent in VFA’s compensation policy was not identified or monitored. Compensation policies that reward representatives for moving customers from one complex proprietary product to other potentially higher cost products must include monitoring and supervision that ensure that the representatives are not putting their own financial interests ahead of their obligation to their customer.”
In addition, FINRA found that VFA failed to maintain systems and procedures to adequately supervise certain aspects of sales of individual VAs. The firm failed to provide its principals reviewing VA transactions with sufficient information to consider the customer’s other assets, failed to enforce its procedures relating to the review of required VA disclosure forms, allowed principals to review and approve transactions without all required documentation in certain instances, and failed to enforce its procedures relating to the review of VA transactions that exceeded customer concentration levels. In addition, the firm failed to have adequate procedures relating to the supervision of multi-share class VAs, particularly L-shares.
In settling these matters, VFA neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA’s Disciplinary Actions Online database. Investors can also call FINRA’s Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
FINRA, the Financial Industry Regulatory Authority, regulates all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.
Source: Financial Industry Regulatory Authority (FINRA)