FINRA puts $8.8M lump of coal in Transamerica’s holiday stocking

The night(mare) before Christmas
December 23, 2020
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‘Tis the season of presents and good wishes. And as most of us head off for what we hope will be a COVID-free year, 2021 may not be as jolly for Transamerica.

To kick-off the winter solstice, the Financial Industry Regulatory Authority (FINRA) hit Transamerica Financial Advisors, Inc. (TFA) with an $8.8 million judgment for failing to properly oversee registered representatives’ recommendations on variable annuities, mutual funds, and 529 plans, affecting about 2,400 customers in total.

Transamerica will be paying approximately $4.4 million in restitution to those approximately 2,400 customers and paying a FINRA fine of $4.4 million.

According to Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, exposures like these will continue to happen if firms fail to exercise appropriate oversight or deliver adequate training to their representatives. Pandemic or no, FINRA will remain diligent.

What poor supervision cost Transamerica

The supervisory lapses have been going on for years, according to the FINRA investigation. Apparently, from May 1, 2010 through May 15, 2016, Transamerica failed to reasonably supervise representatives’ variable annuity recommendations – to its profit. During this period, the firm’s commissions from the sale of variable annuities comprised more than 40 percent of its total revenue. Yet, Transamerica’s flawed system for supervising variable annuity permitted various sales practice violations.

Most significantly, says FINRA, the firm failed to detect representatives making thousands of misstatements to customers in recommending variable annuity exchanges, understating the benefits of the existing variable annuity, and overstating the benefits of the new variable annuity.

More problems due to lack of oversight

Add to that, from January 1, 2009, through November 15, 2016, Transamerica also failed to reasonably supervise representatives’ mutual funds’ sales. Instead, the firm relied on its representatives to determine the applicability of sales charge waivers to customers’ mutual fund purchases. Then, Transamerica failed to provide guidance to representatives to help them make this determination. Finally, Transamerica failed to establish a system to verify whether waivers were properly applied.

Transamerica customers paid the price – approximately $438,239.

And then there were the 529 plans…

From May 1, 2010 through May 31, 2015, FINRA found that Transamerica also failed to reasonably supervise representatives’ recommendations to customers to purchase particular share classes of 529 savings plans. It did not provide adequate guidance to representatives regarding the importance of considering share-class differences when recommending 529 plans. The firm also failed to provide supervisors with the information necessary to properly evaluate the suitability of the rep’s 529 share-class recommendations.

Lapses uncovered during cycle exam

FINRA uncovered the alleged supervisory lapses during a cycle examination, noting that the sale of the inappropriate products generated gross commissions of more than $591 million.

Most significantly, FINRA noted in its findings, Transamerica failed to detect that some of its representatives made thousands of misstatements to customers in recommending variable annuity exchanges, understating the benefits of the existing variable annuity and overstating the benefits of the new variable annuity.

Wouldn’t compliance have been so much less costly?

Of course! And that’s where Patrina could have helped. For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, comprehensive, 8-module compliance solution, compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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