As a result, clients were generally invested in more expensive mutual funds and mutual fund share classes, the SEC said. Also, the SEC said VFA had agreed to pay execution costs for clients participating in its wrap fee programs, but by instructing the third-party advisor to limit new funds to those in the NTF Program for which VFA would not pay any execution costs, VFA avoided paying any execution costs for the clients’ purchases or sales of the mutual funds in the NTF Program.
“VFA misled clients by telling them that their advisory fee would cover execution costs without also telling them that VFA would put them in more expensive mutual fund share classes and thus avoid paying those costs.” Stephanie Avakian, co-director of the SEC’s Division of Enforcement, said in a statement. “By not disclosing these practices as well as the other financial benefits VFA received, the firm deprived its clients of essential information about their relationship with their adviser and violated core fiduciary obligations.”
In response to the SEC release, Claire Talcott, an AIG spokesperson, said in a statement, “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.”
Without admitting or denying the SEC’s findings in the order concerning Florida teachers, the VFA has consented to a cease-and desist order, a censure, and a civil penalty of $20 million, the SEC said. VFA also has agreed to set advisory fees for all Florida K-12 teachers who currently participate in its advisory product in Florida’s 403(b) and 457(b) retirement programs, or who currently or may within the next five years own certain other VALIC Financial Advisors products, at its most favorable rates in the Florida K-12 market.
Without admitting or denying the SEC’s findings concerning VFA’s mutual fund fee disclosure practices, VFA has consented to a cease-and-desist order, a censure, disgorgement, and prejudgment interest of more than $15.4 million, and a civil penalty of $4.5 million, the SEC said. The more than $19.9 million in monetary relief will be placed into a fund for distribution to investors affected by this conduct, the SEC said.