The Securities and Exchange Commission charged VALIC Financial Advisors (VFA) for failing to disclose to teachers and other investors practices that generated millions of dollars in fees and other financial benefits for the firm.
In the first action, the SEC found that VFA failed to disclose that its parent company paid a for-profit business owned by Florida K-12 teachers’ unions to promote VFA and its parent company services to teachers.
In the second action, the SEC found that VFA failed to disclose conflicts of interest regarding its receipt of millions of dollars of financial benefits that directly resulted from advisory client mutual fund investments. The mutual funds were generally more expensive for clients than other available options.
VFA agreed to pay approximately $40 million to settle both charges.
“We are pleased to have resolved these matters involving VALIC Financial Advisors, which is taking all necessary steps to ensure a robust program of disclosure improvements and governance enhancements,” a company spokesperson said in an email.
‘Member benefit coordinators’
According to the charges, VFA parent company VALIC made payments for 13 years to a business owned by the Florida teachers’ unions in exchange for an exclusive endorsement of VFA as its preferred financial services partner.
VALIC also provided the business owned by the teachers’ unions with three full-time employees to serve as “member benefit coordinators.”
These coordinators—who the SEC says deceptively presented themselves as employees of the entity owned by the teachers’ unions—promoted VALIC and VFA to Florida K-12 teachers, including at benefits fairs and financial planning seminars.
The order finds that the member benefit coordinators increased VFA’s access to K-12 teachers in Florida, and that VFA did not disclose that the for-profit entity was paid to make VFA its preferred financial services provider.
VFA (together with VALIC) earned more than $30 million on the products it sold to Florida K-12 teachers during the period covered by the SEC’s order.
“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,” SEC Chairman Jay Clayton said in a statement. “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.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
