Transamerica Financial Advisors has agreed to pay $8.8 million to settle Financial Industry Regulatory Authority charges that the firm failed to supervise costly sales abuses. TFA will pay approximately $4.4 million in restitution to 2,400 customers for failing to supervise its registered representatives’ recommendations in three different products—variable annuities, mutual funds and 529 plans. Finra also fined TFA $4.4 million.
TFA’s lack of supervision led to widespread and costly sales practice violations, including aggressive variable annuity exchanges, rampant sales misrepresentations, failures to apply mutual fund sales charge waiver waivers and the sale of the priciest 529 plan fund shares, according to the Finra settlement.
“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,” Jessica Hopper, executive vice president and head of Finra’s Department of Enforcement, said in a statement.
According to a written statement sent to Financial Advisor by a TFA spokesperson, “TFA cooperated fully with FINRA throughout the proceeding, and the settlement announcement concludes FINRA’s proceeding. TFA is confident in its investment recommendations and remains committed to continuously improving its business practices.”
Finra found that TFA failed to reasonably supervise reps’ variable annuity sales and exchanges, resulting in various sales practice violations from May 1, 2010 through May 15, 2016. The firm’s commissions from the sale of variable annuities comprised more than 40% of TFA’s total revenue, yet TFA’s system of supervision for variable annuity sales and exchanges was deficient, leading to widespread sales practice violations, the regulator found.
“Most significantly, the firm failed to detect that certain of its representatives made thousands of misstatements to customers in recommending variable annuity exchanges, understating the benefits of the existing variable annuity, and overstating the benefits of the new variable annuity,” Finra said.
TFA also failed to reasonably supervise reps’ sale of certain mutual funds. According to Finra, TFA relied on its reps to determine the applicability of sales charge waivers to customers’ mutual fund purchases, but the firm failed to provide guidance to representatives to help them make this determination and failed to establish a system to verify whether waivers were properly applied.
As a result, TFA failed to apply approximately $438,239 in available sales charge waivers to customers between January 1, 2009 through November 15, 2016, according to the settlement.
TFA also failed to reasonably supervise rep’ recommendations to customers to purchase pricier share classes of 529 savings plans, regardless of the availability of less expensive share classes.
“TFA did not provide adequate guidance to representatives regarding the importance of considering share-class differences when recommending 529 plans and failed to provide supervisors with the information necessary to properly evaluate the suitability of 529 share-class recommendations,” Finra said.
Finra discovered TFA’s sales practice and supervision violations during a cycle examination, the regulator said.
As part of the settlement, TFA neither admitted nor denied the charges according to Finra, but consented to the entry of findings.