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Regulation and Compliance > Federal Regulation > FINRA

FINRA Fines VALIC $1.75M Over Comp Policies, VA Sales

By Janet Levaux

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The Financial Industry Regulatory Authority is fining VALIC Financial Advisors (VFA) $1.75 million for not properly addressing some conflicts of interest in its compensation policy and failing to adequately supervise its variable-annuities business, including the sale of VAs with multiple share classes.

From October 2011 through October 2014, VFA “created a conflict of interest” by giving 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 indexed annuity, according to the regulator.

At the time, VFA also said reps would not be compensated when they moved client funds from a VALIC VA to non-VALIC VAs, mutual funds and other non-VALIC products. In 2012 and 2013, FINRA found a “significant volume of assets moving from VALIC VAs to the advisory platform.”

During the seven months after VALIC’s compensation policy was amended to include a proprietary fixed indexed annuity, sales of the product grew over 600%, according to FINRA. VALIC, which is part of AIG and is based in Houston, has over 1,300 advisors. (VALIC stands for Variable Annuity Life Insurance Company.)

“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,” explained FINRA enforcement chief Brad Bennett, in a statement Monday.

VALIC did not have systems and procedures to sufficiently supervise certain aspects of sales of individual VAs or multi-share class VAs, particularly L-shares, FINRA says.

For instance, 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,” according to FINRA.

In settling the issues, VALIC did not admit to or deny the charges. It did, however, agree to entry of the findings.

“VALIC Financial Advisors is pleased to resolve this matter with FINRA,” the company said in a statement shared with ThinkAdvisor on Tuesday. “We have enhanced a number of processes and procedures to address FINRA’s concerns from its 2013-2014 review. We take our regulatory compliance obligations very seriously and remain focused on providing our clients with the best service possible.”

— Check out BD Charged With Fleecing Seniors With Unsuitable Products, High-Pressure Contests on ThinkAdvisor.

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