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The Securities and Exchange Commission (SEC) announced that it has reached a $40 million settlement with VALIC Financial Advisors (VFA) over failing to disclose payments to promote services to Florida educators. The company made the announcement on July 28 via the U.S. Securities and Exchange Commission website. The SEC order says the company, Valic Financial Advisors, “failed to disclose to certain Florida teachers who were potential and actual clients that VFA’s parent, The Variable Annuity Life Insurance Company, doing business under the AIG Retirement Services, Inc. brand (“VALIC”), was providing cash and other financial benefits to a for-profit company owned by Florida K-12 teachers’ unions.”
Each Florida school district provides its K-12 teachers with defined contribution tax-deferred retirement plans under Sections 403(b) and/or 457(b) of the Internal Revenue Code. Under these plans, the teachers themselves choose investments and advisory services. In some cases, Florida teachers were paying Valic an advisory fee of .6 percent of their retirement assets, while also investing in annuities with fees of up to 2.3 percent of assets annually.
The higher fees mean that teachers have less money in retirement than they would otherwise. The SEC settlement will allow the teachers to recover some of that money by forcing Valic to disgorge some of the fees it collected.
“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 U.S. SEC Chairman Jay Clayton. “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.”
The order finds that VFA either directly invested or instructed its primary sub-adviser to select new mutual fund investments for clients that were part of VFA’s clearing broker’s no-transaction fee program (NTF Program), and thus would not incur a transaction fee VFA would be responsible for paying. The NTF Program mutual funds were generally more expensive than other mutual funds available to VFA clients, including instances when a less expensive mutual fund share class for the same fund was available outside the NTF Program.
The SEC’s order concerning Florida teachers finds that VFA willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-3 and 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, VFA has consented to a cease-and-desist order, a censure, and a civil penalty of $20 million.
The SEC’s investigation of this order was conducted by Heather E. Marlow and supervised by Jeremy Pendrey, both of the Asset Management Unit and the San Francisco Regional Office, and supervised by Monique C. Winkler, Associate Regional Director, and Erin Schneider, Director, of the San Francisco Regional Office and C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. To view the order itself, please visit the VALIC Financial Advisors, Inc. website.
Chris began his writing as a hobby while attending Florida Southern College in Lakeland, Florida. Today he and his wife live in the Orlando area with their three children and dog.