More Than $1 Million in Penalties and Restitution
Transamerica Financial Advisors, Inc., a St. Petersburg, FL-based company, is well aware that in the areas of finance and investing, “big brother” in the form of industry regulators is always watching. With more than a dozen regulatory events on record against Transamerica, the firm should be well-versed in the consistencies required in policies and procedures that govern investment firms. Yet a recent SEC investigation of one of Transamerica’s branch offices revealed that they had overcharged clients by not offering breakpoint discounts to its clients in a uniform manner.
As an incentive to clients, Transamerica offered their clients concessions on the amount of their fees if the clients made larger contributions to certain investment programs. The company allowed clients to combine the values of similar accounts in order to achieve the reduced fees. Transamerica did not, however, uniformly process all of the combined asset discounts requested by some of their clients. Additionally, the firm failed to have consistent procedures in place that mandate its representatives needed to give the savings from the aggregation of accounts to the client. Not receiving the appropriate discounts resulted in some clients being overcharged, and a lack of adequate policies made it impossible for the firm to properly calculate its fees.
“Transamerica failed to properly aggregate client accounts so that they could receive a fee discount, and this systemic breakdown caused retail investors to overpay for advisory services in thousands of client accounts,” said SEC representative, Julie M. Riewe.
The SEC’s order establishing resolution to the administrative proceedings stated that Transamerica has been insufficiently processing aggregation requests since 2009. In 2010, the SEC examined the practices of a Transamerica branch office which is how they discovered the insufficiencies; they then made Transamerica aware of the aggregation issues. Although that particular branch office of the firm distributed refunds to their clients, Transamerica still neglected to institute a company-wide investigation of all off their client accounts, even though the SEC examiners suggested they do so. Consequently, a successive review by the SEC in 2012 of Transamerica’s headquarters revealed that the company was still not aggregating some of its related client accounts thereby demonstrating that the lack of properly aggregating these accounts existed within other branches, as well. As a result of this investigation, the firm audited client records and has reimbursed 2,304 current and former client accounts with refunds and credits totaling $553,624 which includes interest.
According to Eric Bustillo, director of the SEC’s Miami office, “The securities laws require investment advisors to charge advisory fees consistent with their own disclosures and stated policies so investors get what they bargained for. Transamerica failed to take appropriate remedial steps even after SEC examiners had flagged the problem.”
The SEC’s order determined that that Transamerica knowingly violated several sections of the Investment Advisors Act of 1940. Even though they have agreed to settle the charges, the firm neither admitted nor denied the SEC’s findings; they did, however, agree to a censure. Additionally, they must cease and desist in perpetrating any other violations of federal securities laws, they have agreed to pay a penalty of $553,624, and they have agreed to employ an independent consultant to analyze the policies and procedures associated with forms, fee schedules, and fee computation methodologies. The consultant will also audit the firm’s account aggregation process for breakpoint discounts.
If you feel that you have been overcharged as the result of Transamerica Financial’s inconsistent breakpoint discount practices, please call us at the Blum Law Group for a free consultation at 1-877-STOCK-LAW.