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AIG Settlement Shows K-12 403(b) Not A-okay 😢

August 2, 2020

On July 28, 2020 the SEC announced that AIG/Valic Financial Advisors (VFA) had agreed to two multi-million dollar settlements, one related to the firms K-12 403(b) practices in Florida and the second over disclosures related to a managed account program for individual clients. In true corporate double-speak AIG/VFA neither admitted nor denied the SEC’s civil claims. It is estimated the firm reaped upwards of $30 million through the practices in question. The SEC had filed two actions against the firm. There were two settlements. 

  • Action 1: The SEC found that VFA failed to disclose that its parent company paid a for-profit entity owned by Florida K-12 teachers’ unions to promote VFA and its parent company services to teachers (SEC). As part of the settlement related to this Action, VFA agreed to cap advisory fees for Florida teachers currently participating in the firm’s advisory product in both the 403(b) and 457(b) plans. 
  • Action 2: 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 individual advisory client mutual fund investments that were generally more expensive for clients than other mutual fund investment options available to clients (SEC). VFA failed to self-report receipt of undisclosed 12b-1 fees even when they had the opportunity in 2018.

Big Thanks to the SEC

We are especially appreciative of the efforts of the San Francisco SEC office which has hosted two events in California aimed at raising awareness around K-12 403(b) issues. My podcast partner Scott Dauenhauer and I were more than honored to serve as panelists at their fall 2019 event. We discussed this experience including our perspective on the SECs attention to these issues in a pod episode called You Down with S.E.C.? 

Chairman Jay Clayton has shown extraordinary engagement on this issue. While he wasn’t able to attend the fall Los Angeles event, his video message to attendees left little doubt how he views shady K-12 403(b) practices. In announcing the AIG/VFA settlement Clayton remarked: “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. 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.”

We couldn’t agree more. 

The Wall Street Journal

WSJ reporter Anne Tergesen has been on K-12 403(b) issues for months. In December 2019 she and then-colleague Gretchen Morgenson reported on the National Education Association’s sordid relationship with the K-12 403(b). Anne and colleague Dave Michaels were all over this most recent example of K-12 403(b) malfeasance.   

Imagine What We Don’t Know?

We always love to see these shameless practices brought to light. Unfortunately, this latest revelation is but a few grains of sand on a very dirty beach. The K-12 403(b) is still not A-okay.

Stay well.

(Updated 12:50m on 8/4/20).