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 )

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

What can advisers learn from the first female fighter pilot?

Pressure is pressure. Whether you are taking off from an aircraft carrier or dealing with the unforgiving movements of the market, you need to have a plan. Carey Lohrenz, the world's first female F-14 pilot, has some advice for advisers.

Latest news & opinion

10 most affordable U.S. cities for renters

Here are the U.S. cities that are most affordable for renters, according to Business Student.com, which compared the cost of rent to average salaries.

9 best - new - financial adviser jokes

Scroll through for nine new financial adviser laughs.

Captrust, prominent 401(k) advice firm, ramps up its wealth management business

Captrust wants to grow annual revenue from wealth management to 50% from 30% over the next five years.

Fidelity CEO says zero-fee funds aimed at expanding its universe

Johnson says way to prosper in financial services is 'by building relationships.'

SEC advice rule contains a huge hole

Jay Clayton aims to clear up investor confusion by drawing a distinction between brokers and advisers in the agency's proposed package of revised standards. But where do dual registrants fit?

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print