teacher investment losses

Are You a Teacher With Investment Losses?

Aug 17, 2020

As recently stated by the Securities and Exchange Commission (“SEC”) in reaching a  $40 million settlement, “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.” In a scheme targeting teachers, the SEC recently charged VALIC Financial Advisors Inc. (VFA) in two actions for failing to disclose to Florida teachers and other practices that generated millions of dollars in fees and other financial benefits for VFA. VFA settled claims for failing to disclose payments to a for-profit entity owned by Florida K-12 teachers’ unions to exclusively promote its services to teachers. In a related action, VFA settled claims for failing to disclose conflicts of interest by receiving millions of dollars of financial benefits from advisory client mutual fund investments that were generally more expensive for the teachers than other mutual funds. VFA  settled all of the charges for approximately $40 million. In the settlement, VFA agreed to cap advisory fees for all Florida K-12 teachers participating in its advisory product in Florida’s 403(b) and 457(b) retirement programs, resulting in huge savings for thousands of Florida teachers. According to the SEC’s orders, VFA and its affiliate earned more than $30 million on the products it sold to Florida K-12 teachers.   VFA Did Not Disclose Payments Made in Exchange for Teacher Referrals In the first of the two orders, VFA is charged with undisclosed referral payments. VFA acted as a financial services vendor in almost every Florida school district. According to the SEC,  for 13 years VFA’s parent company, The Variable Annuity Life Insurance Company (VALIC), made payments to a company owned by the Florida teachers’ unions so that the entity would exclusively endorse VFA as its preferred financial services partner, excluding all competitors. In addition, VALIC supplied three full-time employees to  the entity owned by the teachers’ unions to act as “member benefit coordinators.” These so-called coordinators deceptively presented themselves as employees of the entity owned by the teachers union. The coordinators promoted VALIC and VFA to Florida K-12 teachers at benefits fairs and financial planning seminars and referred teachers to VFA for their investment recommendations.  The order charges that the member benefit coordinators increased VFA’s access to K-12 teachers in Florida and that VFA did not disclose that the teacher’s union-owned entity was paid to make VFA its preferred financial services provider. VFA Did Not Disclose Millions of Dollars It Received for Investing Teachers in Certain Funds The SEC separately charged VFA for failing to disclose its receipt of millions of dollars of financial benefits from client investments in mutual funds. According to the SEC, VFA’s wrap agreements stated that the advisory fee the client paid included the costs to execute securities trades. The order states that VFA chose new mutual fund investments for clients that were part it’s clearing broker’s no-transaction-fee program (NTF Program), and thus would not incur any transaction fee which VFA would be responsible for paying. The NTF Program mutual funds were generally more expensive than other mutual funds […]

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