Near the start of the new year, Transamerica Financial Advisors may be finished paying for alleged regulatory woes from the first half of the recently completed decade.
The wealth manager whose parent firm also owns an insurer and asset manager agreed to pay nearly $9 million to settle its third significant regulatory case relating to separate allegations over roughly the same time period.
Transamerica’s supervisory failures in sales of variable annuities, mutual funds and 529 plans caused “significant customer harm,”
“These inaccuracies and omissions, which pertained to surrender charges, fees, and other features of the existing and proposed variable annuities, each had the effect of making the exchange appear to be more favorable than was the actual case,” according to FINRA’s letter of acceptance, waiver and consent.
Transamerica’s latest settlement covers three different periods between 2009 and 2016. Just more than two years ago, the independent broker-dealer and three other entities owned by Dutch insurer Aegon
The two earlier cases involved allegations from many of the same years as the latest one. Transamerica has already paid 433 clients that FINRA examiners said should have received waivers of mutual fund sales charges, and the settlement requires a total of $3.92 million in restitution to clients who exchanged their variable-annuity products or purchased Class C shares in 529s.
Average restitution of $1,833 per client to some 2,400 of them — including about $3,150 in average payouts to 1,141 clients who exchanged variable annuities — plus a fine of $4.4 million adds up to a total settlement of $8.8 million.
“It is imperative that FINRA member firms selling variable annuities, mutual funds, and 529 plans exercise particular care and diligence in training and supervising those representatives who recommend them to customers,” FINRA Head of Enforcement Jessica Hopper said in a statement.
A third-party settlement administrator will pay the restitution to the “very small number” of clients whose accounts were affected by the alleged conduct, according to Transamerica Director of Public Affairs Erin Yang. In an emailed statement, she noted that the firm “cooperated fully” with FINRA’s investigation, which is now complete.
“Since this investigation began in 2015, TFA has enhanced its training, guidance, policies and procedures, and oversight of its registered representatives and has enhanced its disclosures to customers,” Yang said. “TFA is confident in its investment recommendations and remains committed to continuously improving its business practices.”
The proceeding stemmed from FINRA’s cycle examination of the IBD. The firm failed to train reps sufficiently about the varying characteristics of the share classes of VAs, mutual funds and 529 plans in order to make suitable recommendations in certain cases or determine whether the clients were eligible for sales charge waivers in others, according to the settlement.
With respect to VAs, supervisors and home-office compliance personnel missed red flags such as reps who used “a one-size-fits-all approach” to variable-annuity share classes or recommended products designed for short-term liquidity to clients with longer-term goals, the document states. The firm sold more than 51,000 variable annuities over a six-year span, generating over 40% of its revenue.
Between January 2014 and May 2016, reps filled in many questions with false or missing information on a required six-page disclosure form that the firm used to evaluate their variable annuity exchanges, according to the settlement. The four most common mistakes involved the relative merits of the clients’ existing variable annuities, the document states.
At least 26% of the forms omitted any mention of the guaranteed value of their living benefit riders, 26% listed no advantages to the products, 15% overstated their fees and 13% falsely stated that the new variable annuity would be cheaper than the existing product, according to the settlement.
