NEW YORK (Reuters) - The Financial Industry Regulatory Authority fined Houston-based VALIC Financial Advisors for failing to adequately supervise brokers during a time when the firm paid them more to put clients in certain proprietary accounts.
The announcement comes as FINRA conducts a review of sales practices and incentives at its 4,000 member firms to try to root out policies that encourage brokers to put profits ahead of clients’ interests.
The investigation into VALIC Financial is not connected to the broader inquiry, a source familiar with the matter said. A spokeswoman for VALIC said the firm has changed its compensation policy since FINRA’s review.
FINRA said VALIC Financial’s compensation structure between 2011 and 2014 created multiple conflicts of interest for the firm’s 1,350 financial advisers, which the firm failed to review and reasonably address.
Advisers were paid more if their clients moved their money from VALIC variable annuities into VALIC fee-based advisory accounts or VALIC’s fixed-index annuity.
In contrast, advisers were not paid on accounts if they advised a client to move money from a VALIC product into a non-VALIC annuity, mutual fund or retirement plan.
As a result, the regulator found a “significant volume” of assets were moved onto the firm’s advisory platform in 2012 and 2013, and the fixed-index annuity business grew 610 percent.
“Compensation policies that reward (brokers) 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,” said FINRA’s Chief of Enforcement Brad Bennett.
In agreeing to pay the $1.75 million fine, VALIC neither admitted nor denied the charges.
“We take our regulatory compliance obligations very seriously and remain focused on providing our clients with the best service possible,” said spokeswoman Linda Malamut.
VALIC Financial Advisors is a subsidiary of The Variable Annuity Life Insurance Company.