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Finra Fines Firm $1.75M Over Variable Annuities

By Alex Padalka November 30, 2016

Finra has fined a Houston wealth management firm $1.75 million over alleged conflicts of interest and supervisory failures in variable annuity sales.

VALIC Financial Advisors allegedly created a conflict of interest by offering financial incentives for its registered representatives to move client funds from the firm’s variable annuities to a fee-based platform or into fixed income annuities, the regulator says.

Many of the variable annuities were allegedly held in retirement accounts, according to Finra, and the practice was in effect from October 2011 through October 2014. Additionally, the conflict of interest was allegedly exacerbated by the firm’s policy of prohibiting compensation on funds moved from the firm’s variable annuities into non-VALIC products, including variable annuities and mutual funds. The firm also allegedly lacked an adequate supervisory system to monitor the sales of variable annuities, according to Finra.

Meanwhile, sales of variable annuities are projected to decline close to 10% annually in 2017 and 2018 as a result of the Department of Labor’s fiduciary rule, according to a recent report from research and consulting firm Cerulli Associates. The rule, which requires retirement brokers to put clients’ interests first, is the “primary issue” for the variable annuities industry, according to Cerulli.


But the advice industry remains divided on the fate of the rule, as reported previously. One advisor who worked on President-elect Donald Trump’s election campaign has vowed to repeal the rule, but Trump himself has yet to take a stance. The rule, which is scheduled to go into effect in April, also faces several lawsuits. Earlier this month, a U.S. District Judge appeared “sympathetic” to a court challenge brought by nine industry groups including the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce.