The Variable Annuity Life Insurance Company (VALIC), a unit of AIG, was recently ordered to pay a penalty of $19,943,753 for—according to the SEC—breaching its fiduciary duty to clients in connection with its mutual fund sales practices. The SEC’s investigation into VALIC’s misconduct was part of a broader investigation into other misconduct by VALIC, including undisclosed and improper payments to a company owned by Florida teachers’ unions in exchange for the union’s endorsement and referrals of clients to VALIC.
VALIC, a SEC-registered investment adviser and broker-dealer, specializes in retirement plans for schools, colleges, and not-for-profit organizations. In 2019, VALIC rebranded itself and is now known as “AIG Retirement Services”. Investors should review their portfolio to determine whether VALIC or AIG acted in the investors best interest and sold investors products that were suitable for their retirement or was their retirement limited because of excessive fees, costs and commissions.
Did You Lose Money In Variable Annuities?
Variable annuities are big business and insurance companies and retirement planners sell billions of annuities each year. In some cases, these investments are not suitable for investors. This is because of the large fees and commissions associated with annuities that insurance companies and financial advisors take. Financial advisors who sell variable annuities frequently sell these products to all of their clients without consideration for the client’s investment needs, use of tax free vehicles and other factors.
A broker may recommend a variable annuity because it generates some of the highest commissions and fees. Unfortunately, Wall Street incentives advisors to sell risky products by offering high commissions. However, every financial advisor should be looking out for a client’s best interest.
When it comes to teachers and others, a retirement should not be shortchanged by excessive profits to large insurance companies. As people discuss a fiduciary duty, financial advisors must make reasonable recommendations that are suitable and appropriate for customers and must take into consideration financial resources, actual investment objectives, the client’s age, future earning capabilities, and other issues.
SEC Finds That VALIC’s Conduct Was Not In The Best Interest Of Its Clients
According to the SEC, VALIC charges a “wrap fee”, or comprehensive fee, for a bundle of financial services including various portfolio management services, such as the “Managed Investment Program”, which deals almost entirely in mutual funds.
According to the SEC, in selling mutual fund investments as part of its Managed Investment Program, VALIC failed to disclose a revenue sharing arrangement in which VALIC financially benefitted from its client’s investments in certain mutual funds. Unfortunately, the mutual funds that VALIC was pushing as part of this arrangement involved additional costs and fees while lower-cost alternatives were available. Specifically, the SEC Order states “[t]he investments available in the NTF Program were generally more expensive than those otherwise available to clients.” The SEC findings note that VALIC earned millions in profits from this arrangement.
This conduct constituted a violation of a portion of the Investment Advisers Act which makes it unlawful for any investment adviser, directly or indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client.”
SEC Focused On Teacher And Other Public Pension Plans
Over the past year, the SEC has cracked down on mismanagement of teachers’ and other public sector workers’ retirement plans. As exemplified by the VALIC settlements, totaling almost $40 million in settlement payments, the SEC is focused on eliminating hidden cost and fee structures that benefit Wall Street at the expense of unsuspecting teachers and other main street investors.
Do You Have Investment Losses?
Financial advisers often push products that pay high commissions and fees, even when such products are not in the best interests of their clients. Advisers owe their customers a duty to disclose if they stand to financially benefit from an investment recommendation. Investors, especially those who work in the public sector, are entitled to know whether they are truly being sold the best products on the market, and should be protected from hidden fees and undisclosed revenue sharing arrangements.
Silver Law Group is experienced in representing investors in claims related to a wide variety of securities and investment fraud matters nationwide. Scott Silver, managing partner of Silver Law Group and a leading investor advocate, recently submitted a comment letter to the SEC addressing the importance of mutual funds fairly characterizing the fund in its title or name.
Our lawyers can help you recover losses due to stockbroker misconduct and most cases are handled on a contingency fee basis, meaning you won’t owe us any money unless we recover your money for you. Scott Silver, managing partner of Silver Law Group, is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and has extensive experience representing investors in securities and investment fraud cases. Please contact us for a confidential consultation at email@example.com or toll free at (800) 975-4345.