The Financial Industry Regulatory Authority is ordering VALIC Financial Advisors Inc. to pay a $1.75M fine for purported conflicts of interest that impacted the way that the firm compensated brokers for selling annuities. According to the self-regulatory organization, from 10/2011 through 10/2014, the Houston-Based financial firm established a conflict of interest when it said registered representatives would receive financial incentives for recommending that clients transfer their money from VALIC variable annuities into a Valic fixed index annuity or onto its fee-based platform. FINRA said that the firm created even more conflict when it told representatives they would not get compensation from moving customer money to a non-Valic product from a Valic variable annuity.
FINRA said that because of these conflicts, a significant amount of assets were moved to the firm’s advisory platform and sales of VALIC ’s proprietary fixed index annuity increased by over 610% after it was included in the firm’s compensation policy.
FINRA contends that VFA did not have a reasonable system for dealing with and assessing the conflict of interest that its compensation policy generated. It also believes that the firm did not adequately supervise its variable annuity business, including not properly overseeing certain parts of individual VA sales, failing to prove enough information about a customer’s assets to those reviewing the VA transactions, not enforcing procedures regarding the review of VA disclosure forms, allowing principals to approve transactions without the mandated documents, not enforcing procedures involving VA transactions that exceeded the concentration levels for certain customers, and not having the adequate procedures regarding the review of multi-share class VAs (L-shares, in particular).
By settling, however, VALIC Financial Advisors is not denying or admitting to the SRO’s charges.
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Finra fines VALIC Financial Advisors, Inc. $1.75M for Failure to Prevent Conflicts of Interest in its Compensation Policy and for Other Supervisory Failures Related to Variable Annuity Sales, FINRA, November 28, 2016