Transamerica Financial Advisors Inc. a securities broker dealer headquartered in Saint Petersburg Florida has been censured and fined $4,400,000.00 by Financial Industry Regulatory Authority (FINRA) founded on findings including that Transamerica failed to supervise securities transactions and investment recommendations that its stockbrokers made to customers. Letter of Acceptance Waiver and Consent No. 2015048250401 (Dec. 21, 2020).
According to the AWC, between January of 2009 and November of 2016, mutual funds containing different share classes had been sold to customers. Each of the share classes contained different annual expenses, sales charges or fees. Among those available mutual fund share classes was Class A shares which contained upfront sales charges and ongoing fees.
Waivers of sales charges on Class A shares were made available to charitable organization and retirement plan customers through many of the mutual funds offered through Transamerica‘s platform. Transamerica did not supervise the process to ensure that customers received these sales charge waivers. The company instead depended on its stockbrokers to handle this but those stockbrokers were not provided any reasonable guidance from Transamerica concerning sales charge waivers.
FINRA determined that 433 customer accounts had been collectively overcharged $438,239.00 by Transamerica. Customers who were eligible for sales charge waivers were instead sold Class A shares with upfront sales charges or sold Class B or C shares containing higher expenses or fees. FINRA determined that Transamerica’s failure to supervise mutual fund sales constituted the violation of FNIRA Rules 2010 and 3110.
The AWC also stated that between May of 2010 and May of 2016, sales of variable annuities constituted 40 percent of Transamerica’s revenue but the securities broker dealer neglected to supervise its stockbrokers’ recommendations of annuities.
FINRA stated that when a variable annuity exchange had been recommended to a customer, a disclosure form needed to be completed by the customer which acknowledged the features, benefits and fees of both the customer’s existing annuity and the annuity that was proposed by a Transamerica stockbroker. The disclosure form also contained a section for the stockbroker’s justification in making the switch recommendation. Proper completion of the disclosure form was critical for customers to make an informed decision.
Transamerica stockbrokers did not ensure that disclosure forms were completed appropriately. The AWC stated that those stockbrokers were not meaningfully trained on how to complete the forms and how to confirm whether the information contained on them was accurate.
The AWC stated that between January of 2014 and May of 2016, the majority of the 3,781 exchanges were initiated following Transamerica’s receipt of incomplete or inaccurate disclosure forms. Those forms contained omissions or misstatements regarding features, fees and surrender charges on customers’ existing annuities and on those annuities that were offered through Transamerica stockbrokers. FINRA noted that forms overstated the fees relating to customers’ existing annuities and understated fees for those annuities that were recommended as replacements. Forms also failed to identify living benefit riders and death benefit riders on customers’ existing policies. This prevented Transamerica supervisors from having an adequate basis to assess the suitability of annuity exchanges. Supervisory personnel at Transamerica authorized exchanges based on faulty disclosure forms.
FINRA also revealed that between May of 2010 and May of 2016, Transamerica failed to supervise the frequency of variable annuity exchanges that were effected by its stockbrokers. The securities broker dealer additionally neglected to supervise variable annuity share class recommendations. Customers were sold annuities by Transamerica stockbrokers who were inadequately trained and who did not understand the red flags associated with selling C-share and L-share contracts to those customers who did not have any short-term liquidity needs. FINRA indicated that Transamerica neglected to take appropriate steps to resolve this problem after being made aware of the red flags. The securities broker dealer violated FINRA Rules 2010, 2330 and 3110 for supervisory failures pertaining to annuities.
The AWC additionally confirms that 529 share class recommendations were not supervised by Transamerica. Between May of 2010 and May of 2015, a faulty supervision system was used by Transamerica which precluded supervisors from evaluating recommendations. Supervisors were not obligated to review beneficiaries’ ages or their investment horizons. Stockbrokers were also not provided reasonable guidance concerning the different share classes available in those plans. FINRA determined that Transamerica violated MSRB Rules G-27 for this reason.