Valic Financial Advisors agreed Tuesday to pay $40 million to the Securities and Exchange Commission to settle a pair of actions in which VFA failed to disclose to teachers and other investors practices that generated millions of dollars in fees and other financial benefits for the firm.
The SEC levied two actions against VFA, based in Houston. In the first, the SEC found that VFA failed to disclose that its parent company paid a for-profit entity owned by Florida K-12 teachers’ unions to promote VFA and its parent company’s services to teachers.
The parent company of VFA is the Variable Annuity Life Insurance Co., a unit of the American International Group.
In the second action, the SEC found that VFA failed to disclose conflicts of interest regarding its receipt of millions of dollars of financial benefits that directly resulted from advisory client mutual fund investments that were generally more expensive for clients than other mutual fund investment options available to clients.
The second action found that despite being eligible to do so, VFA did not self-report its receipt of undisclosed 12b-1 fees as part of the Division of Enforcement’s Share Class Selection Disclosure Initiative announced in February 2018. That initiative ended last year.
“Teachers need and deserve our attention, and we are dedicated to ensuring they receive all of the information they are entitled to when making decisions about their financial futures,” said SEC Chairman Jay Clayton, in a statement. “Too often educators are targeted with misconduct related to their investments. Our nation’s educators, and our Main Street investors more generally, are entitled to full and accurate information about the incentives and conflicts affecting their financial advisors.”
Clayton launched an initiative to target frauds against teachers last June.
Without admitting or denying the SEC’s findings, VFA consented to a cease-and-desist order, a censure and a civil penalty of $20 million.
VFA has also agreed to set advisory fees for all Florida K-12 teachers who currently participate in its advisory product in Florida’s 403(b) and 457(b) retirement programs, or who currently or may within the next five years own certain other Valic Financial Advisors products, at its most favorable rates in the Florida K-12 market.
The SEC’s order concerning VFA’s mutual fund fee disclosure practices finds that VFA violated Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7 thereunder.
Without admitting or denying the SEC’s findings, VFA consented to a cease-and desist order, a censure, disgorgement and prejudgment interest of more than $15.4 million, and a civil penalty of $4.5 million. The $20 million in monetary relief will be placed into a fund for distribution to affected investors.
“We are pleased to have resolved these matters involving VALIC Financial Advisors, which is taking all necessary steps to ensure a robust program of disclosure improvements and governance enhancements,” an AIG spokesperson said in a Tuesday statement.
Payments for Referrals
VFA is a financial services vendor in nearly every school district in Florida.