Transamerica Financial Advisors and FINRA reached agreement for Transamerica to pay $8.8 million in fines and restitution to settle charges that it failed to reasonably supervise representatives' variable annuity recommendations, mutual fund sales, and share-class recommendations, resulting in nearly $4.4 million in damages to customers.
According to AWC #2015048250401, Transamerica representatives made thousands of misstatements to customers in recommending variable annuity exchanges, failed to apply available waivers to mutual fund customers, and failed to properly evaluate suitability of 529 share-class recommendations.
FINRA's report states that from 2010 through 2016, Transamerica failed to reasonably supervise representatives' VA and mutual fund transactions, and also failed to adequately train or guide representatives to assist them in making several important determinations, such as suitability, applying fee/sales charge waivers where applicable, and considering share class differences in recommendations to customers.
Transamerica sold over 51,000 variable annuity policies during the relevant period, generating gross dealer commissions of $591 million.
Investigators found that while the firm generated $591 million in commissions, it failed to disclose that surrender charges would be assessed in connection with an exchange or inaccurately stated attributes of the variable annuity and/or charges and fees associated with the transactions, such as improperly stating there would be no advantages associated with retaining the customer's existing variable annuity when there would have been at least some advantages to keeping the existing securities product.
Furthermore, Transamerica purportedly failed to supervise representatives' specific share-class recommendations amongst different share class options, including B shares, L shares, and C shares. B-share contracts typically have a seven-year surrender period with L-shares possessing a shorter surrender period (three-to-five years) and higher annual fees. C-share contracts typically have no surrender period, but higher annual fees than L-share contracts.
Transamerica brokers allegedly sold the relatively short-term L- and C-share contracts with long-term living benefit riders to investors who had longer-term investment horizons of over seven years, for whom a B-share contract would likely have been more suitable.
In regards to mutual funds, FINRA found that the firm overcharged 433 accounts a total of $438,239 through its failure to apply sales charge waivers to mutual fund purchases made by eligible customers.
Similar to Transamerica's alleged deficient supervision and training in variable annuities' B/L/C share classes, FINRA found that the firm's supervisory failures regarding the suitability of recommending mutual fund A shares vs B and C shares likewise contributed to customer damages through the incurrence of higher fees.
Finally, FINRA found that Transamerica's systems and procedures for supervising representatives' 529 plan (tax-advantaged municipal securities) recommendations was not reasonably designed and, as occurred in the aforementioned variable annuities and mutual funds sections, resulted in share class transactions that may have been unsuitable for certain investors, resulting in excess front-end sales charges or annual fees, depending on the share class transacted and individual customer characteristics.
FINRA cited lack of or insufficient training as a primary contributor to the unsuitable recommendations.
If you have invested with Transamerica Financial Advisors or with any stockbroker or financial adviser who unsuitably recommended investment in a variable annuity or mutual fund share class that was not suitable for your unique financial objectives or investment horizon, resulting in excessive or avoidable fees, sales charges, or commissions that have proven harmful to your interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.