A St. Petersburg, Florida-based financial services firm was recently charged with inappropriately-calculated fee discounts and inadequate policies and procedures (“P&P”). Charges were filed against Transamerica Financial Advisors (“Transamerica”) by the Securities and Exchange Commission (“SEC”) at the beginning of April 2014. The SEC found, through examinations and a later investigation based on the examination result, that Transamerica falsely offered advisory fee discounts to their clients “when they increased their assets in certain investment programs,” for which they would become eligible for discounts by “aggregat[ing] the values of related accounts.” The aggregation requests for discounted fees were not applied in all client accounts, causing certain “retail investors to overpay for advisory services in thousands of client accounts.”
In addition to the falsely-applied fee discounts, the SEC found inadequacy in Transamerica’s policy and procedures and weaknesses in the firm’s internal controls. The firm-wide “conflicting policies” about providing discounted fees with aggregation requests contributed greatly to the fee charge discrepancies. Although a 2010 SEC investigation of a Transamerica branch office found aggregation issues, the firm failed to evaluate and unify the policies and procedures of its remaining branch offices, which lead to additional aggregation problems at Transamerica’s headquarters in 2012.
It is imperative for firms to evaluate the adequacy and consistency of applying policies and procedures to actual business practices.
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