Ameriprise annuity affiliate to pay $5M over first SEC case of its kind

Four years after an Ameriprise subsidiary sent disciplinary letters to some employees about variable annuity exchanges, the firm settled a related SEC case that’s the first of its kind.

Ameriprise’s RiverSource Distributors improperly switched or replaced its variable annuities “for the purpose of generating additional selling charges” for its wholesalers and the registered representatives of the firm’s affiliated wealth manager between January 2017 and May 2018, according to SEC Deputy Enforcement Director Sanjay Wadhwa. As part of the May 25 settlement of the case that’s the regulator’s first under Section 11 of the Investment Company Act, RiverSource agreed to pay a civil money penalty of $5 million.  

“Protecting retail investors from abusive sales practices is a mainstay of our enforcement program, and we remain committed to holding accountable those who engage in such conduct,” Wadhwa said in a statement.

Most of the relevant period in the case came in a year when overall VA sales slipped by 9% to $95.6 billion — which was the first time in nearly two decades that the volumes for the complex and often-controversial product fell below $100 billion. With “downward pressures” on the business, the firm’s wholesalers created color-coded lists of VA “exchange opportunities,” including the potential sales commissions for Ameriprise’s reps, according to the SEC. 

RiverSource’s wholesalers used the lists “to encourage” the reps to “offer variable annuity replacements,” the SEC says. In 2017, the firm’s VA exchanges jumped by 31% to $1.01 billion, according to the settlement. The following year, they reached $1.05 billion, it states.

With that spike, RiverSource’s compliance department investigated the transactions and sent letters of “reprimand/caution” to certain wholesalers, the SEC says. Compliance staffers later held a training program about why the practice violated the provision of the Investment Company Act that prohibits underwriters from exchanging one of a company’s own VAs for another without SEC approval or under certain “limited exceptions,” the settlement states. 

Ameriprise didn’t admit or deny the allegations as part of the settlement.

“RiverSource Distributors is pleased to resolve this matter,” Ameriprise spokeswoman Kathleen McClung said in a statement. “We identified and promptly addressed it several years ago, including through enhanced training and updated policies and procedures.”

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The gap between the underlying alleged conduct and the announcement of the case seems “troubling” to Bill Singer, a former regulator and a securities attorney who wrote about the case on his compliance blog, Broke and Broker. Singer also expressed concern about the “wrong message” that the settlement order is sending by not specifically stating that the firm received credit for detecting the conduct. Despite being the first case of this type ever, SEC Chair Gary Gensler’s team is acting like “the folks with the broom at the end of the parade,” Singer said.

“This is something that the commission should have been doing for the past decade,” Singer said. “At the end of the day, we've gotta be careful with these cases because the investors are not well-served by these types of practices. … It's a good case. The only problem is, jeez, this is the best example you could pick, when the firm's compliance department put a stop to it?”

RiverSource remains one of the largest VA issuers in the marketplace, with $431.3 million in sales during the first quarter, according to the LIMRA U.S. Individual Annuity Sales Survey. Overall VA sales dropped 6% year over year to $28.1 billion in the quarter.