Variable annuities, mutual funds, and 529 plans are the three products for which recommendations made by its representatives, the Financial Industry Regulatory Authority (FINRA) has concluded, Transamerica Financial Advisors Inc. failed to reasonably supervise.
This has led to Transamerica being docked $8.8 million by FINRA. Of this, $4.4 million fine while the other $4.4 million is towards restitution.
Transamerica operates through 350 branch offices and 3400 registered representatives. The letter of acceptance, waiver, and consent (AWC) issued by FINRA in this context has been signed by Transamerica, but without commenting on the findings or their culpability.
Regarding variable annuities, FINRA has found violations of sales practices emanating from deficiencies in Transamerica’s supervisory processes. According to FINRA, the firm’s representatives, some of them, routinely recommended variable annuity exchanges, the modus operandi being to underplay the benefits of the existing variable annuity while overstating the benefits of the new one. This practice of selling on the basis of misstatements has been censured by FINRA. Thousands of such misstatements were made during the period beginning around May 2010, till May 2016. During this period, the firm earned over 40% of its revenue as a commission from the sale of variable annuities, adding up to over $591 million.
Supervisory failures extended to their sale of certain mutual funds as well, mainly with regard to the determination of eligibility of customers to benefit from sales charge waivers on transactions. According to FINRA, Transamerica relied on its representatives to determine the applicability of waiver to transactions. Where it failed was in providing guidance to representatives and equipping them to make these decisions correctly, and also in verifying correctness in cases where they were applied or not applied. These failures resulted in Transamerica not applying $438,200 worth of eligible waivers to customer accounts between January 2009 and November 2016.
The third transgression relates to Transamerica’s failure to supervise recommendations made by their representatives to customers for the purchase of certain share classes of 529 savings plans. Not only was adequate guidance not provided, but even supervisors also did not receive the information required to be in a position to evaluate the suitability of recommendations pertaining to 529 share-class in any meaningful manner.
Transamerica does not have a record of similar earlier transgressions leading to disciplinary action.