Finra hits Valic Financial Advisors with $1.75M fine for creating compensation conflicts

Regulator said reps were incentivized to sell firm's annuities and discouraged from selling non-proprietary products

Nov 28, 2016 @ 2:58 pm

By Bruce Kelly

Citing a number of conflicts of interest having to do with the way it compensated brokers selling annuities, the Financial Industry Regulatory Authority Inc. on Monday said it had fined Valic Financial Advisors Inc. $1.75 million.

“Finra found that [Valic Financial Advisors, or VFA,] failed to have a reasonable system to address and review the conflict of interest created by its compensation policy,” according to a press release from Finra.

Finra specifically pointed to instances when the broker-dealer's clients chose to move assets out of Valic variable annuities to other in-house products, including Valic indexed annuities, as leading to the fine.

“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,” Finra stated. “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,” according to the release. “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%.”

VFA, which has about 1,350 advisers, is owned through subsidiaries of American International Group Inc., the giant insurer.

“Valic Financial Advisors is pleased to resolve this matter with Finra,” said AIG spokeswoman Jessica McGinn. “We have enhanced a number of processes and procedures to address Finra's concerns from its 2013/2014 review.”

(See: Indexed annuity sales on pace for record year, as VAs take another big hit )

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