Key Issue: AIG Settles with SEC in 403(b) Probe
July 28, 2020
Statement Regarding SEC Ongoing Efforts to Protect Teachers’ Retirement Savings - Chairman Jay Clayton.
Excerpt: This morning, I opened a press conference regarding the Enforcement action against Valic Financial Advisors, Inc. with the following personal remarks:
First, Our Teachers Initiative, which we announced about a year ago. It is an important aspect of our efforts to focus enforcement and investor education resources where they are needed and will have the greatest impact – we have at least 800,000 teachers who participate in defined contribution plans with a total of over $1 trillion in assets.
Second, Stephanie Avakian and Steve Peikin, and their team in the Division of Enforcement — in particular the women and men in our San Francisco Regional Office — have recognized that teachers need and deserve our attention, and they have turned this recognition into tangible actions with lasting benefits. They have my great thanks and admiration. You will hear from them in a moment.
Excerpt: The Securities and Exchange Commission today charged Houston-based VALIC Financial Advisors Inc. (VFA) in a pair of actions for failing to disclose to teachers and other investors practices that generated millions of dollars in fees and other financial benefits for VFA.
In the first action, 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.
In the second action, 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 advisory client mutual fund investments that were generally more expensive for clients than other mutual fund investment options available to clients.
VFA agreed to pay approximately $40 million to settle the charges in these two actions. In the first action, VFA agreed to cap advisory fees for all Florida K-12 teachers who currently participate (and, in some cases, those who prospectively participate) in its advisory product in Florida’s 403(b) and 457(b) retirement programs. This will result in significant savings for thousands of teachers.
AIG Unit to Pay $20 Million to Settle SEC Probe of Teacher-Retirement Business - from The Wall Street Journal
Excerpt: A unit of American International Group Inc. AIG +1.10% agreed to pay $20 million to settle claims that it failed to disclose payments intended to draw more business to the firm, the first case to emerge from a crackdown on practices in the market for teachers’ retirement plans.
Florida teachers saving for retirement through 403(b) plans—similar to corporate 401(k) plans—weren’t told about an arrangement by which Valic Financial Advisors Inc. paid hundreds of thousands of dollars to an entity owned by a local affiliate of the Florida Education Association, which in turn promoted Valic’s services, the Securities and Exchange Commission said Tuesday.
Valic benefited in two ways: Teachers bought its annuity products and signed up as clients of its investment-advisory business, paying Valic an annual fee to manage all of their assets.
AIG Settlement Shows K-12 403(b) Not A-okay - 403bwise.org
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.
Excerpt: VALIC Financial Advisors (VFA), a financial services vendor in all but two school districts in Florida, failed to disclose that its parent company paid a for-profit entity owned by Florida K-12 teachers’ unions, and failed to disclose it received millions in financial benefits from advisory mutual fund investments that were generally more expensive for clients than other options, the U.S. Securities and Exchange Commission (SEC) said in a statement.
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