Houston-based VALIC Financial Advisors agreed to pay $1.75 million to settle FINRA charges it failed to identify and reasonably address certain conflicts of interest in the firm’s compensation policy for instances when customers elected to move assets out of their VALIC variable annuities (VA’s), many of which were held in retirement plan accounts. The firm also failed to adequately supervise its VA business, including the sale of VAs with multiple share classes.

From October 2011 through October 2014, VFA allegedly created a conflict of interest by providing registered reps a financial incentive to recommend that customers move their funds from VALIC VA’s to the firm’s fee-based platform or into a VALIC fixed index annuity. VFA further incentivized the conflict by prohibiting its registered reps from receiving compensation when moving customer funds from a VALIC VA’s 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. Also, in a 7-month period after the compensation policy was amended to include the proprietary fixed index annuity, sales of that product grew more than 610%.

VALIC was also cited for supervisory failures, including:

• failed to provide reviewers sufficient information to consider the customer’s other assets; 
• didn’t enforce its procedures for reviewing required VA disclosure forms;
• allowed principals to review and approve transactions without all required documentation; and,
• didn't enforce its procedures relating to the review of VA transactions that exceeded customer concentration levels.