RiverSource Distributors Inc., a subsidiary of Ameriprise Financial Services LLC, has been fined $5 million by the Securities and Exchange Commission for improper switching or replacing of variable annuities, Financial Advisor reports.
The charges involve sales practices that were used in selling variable annuities to retail investors. The SEC found that from 2016 to 2018, certain RiverSource employees used a sales practice that caused exchange offers to be made to holders of variable annuities to switch from one variable annuity to another. This led to increased sales commissions for RiverSource employees and increased revenues for RiverSource’s variable annuity unit.
The SEC said some RiverSource wholesalers created lists of variable annuities owned by Ameriprise customers and color-coded the lists to highlight opportunities for exchanges, including information about the commissions that could be earned from those exchanges.
The practice continued until the company’s compliance department put a stop to it in 2018 through letters of reprimand and warnings to its supervised individuals.
The SEC said its action in this case was its first-ever enforcement proceeding under Section 11 of the Investment Company Act of 1940, which prohibits any principal underwriter from making or causing to be made an offer to exchange the securities of registered unit investment trusts (including variable annuities) unless the terms of the offer have been approved by the SEC or they fall within certain limited exceptions.
“Congress enacted Section 11 to prohibit the improper ‘switching’ of investors from one investment product to another for the purpose of generating additional selling charges – precisely the conduct our order finds RiverSource to have engaged in,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement.
RiverSource did not admit or deny the SEC’s findings, but did consent to the order finding that it violated Section 11 of the Investment Company Act and imposing a cease-and-desist order, a censure and the $5 million civil penalty.
A company spokesperson said Riversource had addressed the matter several years ago, “including through enhanced training and updated policies and procedures.”
After its efforts to address the issue, the SEC said Riversource’s variable annuity exchanges decreased from $1,049,000 in 2018 to $838 million in 2019.
At Lewitas Hyman, our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655 6002or through our online contact form.