SEC slaps fine on AIG units over higher charges
By Staff Writer
Mar 15, 2016 07:50 AM EDT
Mar 15, 2016 07:50 AM EDT
The US Securities and Exchange Commission (SEC) has imposed penalties on AIG's affiliates for steering customers to high-fee products. AIG has decided to offload its brokerage unit amid stringent norms. It is slated to pay $9.5 million for settling the regulator's claims.
American International Group Inc's (AIG) affiliates have been fined by US SEC for high charges in mutual funds. US SEC says AIG influenced its customers to opt for expensive mutual funds. Peter Hancock, Chief Executive, AIG has decided to divest insurance company's brokerage unit in the wake of stricter norms and rules.
Royal Alliance Associates, SagePoint Financial and FSC Securities have alleged to have led their customers into expensive classes of mutual funds. This has resulted in extra $2 million revenues from higher fees, according to US SEC. AIG has agreed to pay $9.5 million to settle claims by US SEC. However, AIG has neither admitted nor denied the charges by US SEC, as reported by Bloomberg.
Marshall S. Sprung, co-head of the SEC enforcement division's asset management unit, said in the statement: "Investment advisers must be vigilant about conflicts of interest when selecting mutual fund share classes because the choice may improperly benefit them at the expense of their clients."
US SEC is keen on brokerage and mutual funds activities, probing conflicts of interest and disclosures in choosing mutual fund share classes. JPMorgan Chase in 2015 agreed to pay $267 million to settle with SEC for a similar act. JPMorgan kept its customers in dark about their investments in a more expensive share class of proprietary mutual funds during 2008 and 2013. Three AIG units have breached their responsibilities, according to Reuters.
Jon Diat, an AIG spokesman said in an e-mailed statement that "Advisor Group is pleased to have reached a settlement with the SEC over two issues it raised that occurred between 2012 and 2014. Advisor Group takes compliance with securities regulations seriously and remains focused on serving the best interests of our clients."
AIG affiliates failed to supervise advisory accounts on a quarterly basis to prevent reverse churning, according to SEC's order instituting a settled administrative proceeding. The three units of AIG have compliance policies and procedures to ensure fee-based or wrap advisory accounts. These accounts have been charged inclusive fee for advisory services and trading costs. Despite infrequent trading, AIG's units failed to implement compliance policies and procedures, adds Corporate crime Reporter.
AIG in January announced its decision to exit broker-dealer operations. The Department of Labor has begun scrutinizing how advisers pitch retirement products. These rules irked AIG and led it to offload brokerage unit. AIG's brokerage unit will be owned independently. It has large retirement operations contributing $2.84 billion to pretax operating income in 2015. Most of the profits were made from the consumer segment.
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