The Financial Industry Regulatory Authority has censured and ordered multiple broker-dealers to pay a total of $11.1 million in restitution to clients for their alleged failures to reasonably supervise their registered representatives’ recommendations to customers who purchased particular share classes of 529 savings plans.
- UBS Financial Services will pay $4.8 million to affected clients
- Wells Fargo Advisors and Wells Fargo Advisors Financial Network will pay $3.9 million
- LPL Financial will pay $1.2 million
- MML Investors Services will pay $744,220
- Three subsidiaries of Advisor Group will pay a combined $485,440. The firms include Royal Alliance Associates ($224,400 plus interest), Sagepoint Financial ($63,300 plus interest), and FSC Securities ($125,200 plus interest).
FINRA said that it did not issue additional fines due to each firm’s “extraordinary cooperation” with the regulator. Most of the firms self-reported their alleged violations to FINRA in connection with its 529 Plan Share Class Initiative, where firms were encouraged to review their supervisory systems and procedures governing 529 plans and self-report any potential issues.
529 plans are tax-advantaged municipal securities that are designed to encourage saving for the future educational expenses of a designated beneficiary. Shares of 529 plans are sold in different classes with different fee structures.
According to FINRA, Class A shares typically impose a front-end sales charge but charge lower annual fees compared to other classes. Class C shares typically impose no front-end sales charge but impose higher annual fees than Class A shares. Because of their higher annual fees, Class C shares may be more expensive over extended holding periods and, consequently, Class A shares are frequently the suitable option for accounts with younger beneficiaries and longer investment horizons.
For UBS, FINRA claims that the firm did not apply its supervisory controls to off-platform 529 plan transactions and did not adapt its share-class suitability procedures to 529 plans.
FINRA claims that Wells Fargo’s supervisory system for 529 plans did not reasonably address
share-class suitability and did not detect share-class recommendations that were likely inconsistent with the suggested time horizon for certain 529 plan investments.
For LPL, FINRA claims that its supervisory system for 529 plan rollover recommendations was not reasonably designed. The firm also allegedly failed to adequately notify and train its representatives regarding the availability of sales charge waivers and Class AR shares, which are typically available to customers who held Class A shares in one state-sponsored 529 plan but rolled over the shares into another state’s 529 plan.
FINRA said that MML failed to reasonably supervise representatives’ 529 plan share-class recommendations and failed to supervise mutual fund and 529 plan transactions for available breakpoint discounts.
For the Advisor Group subsidiaries, FINRA alleged that their supervisory system for 529 plans did not reasonably address share-class suitability and did not detect share-class recommendations that were inconsistent with the time horizon for 529 plan investments.
Representatives from each firm signed their respective letters of acceptance, waiver, and consent without admitting or denying FINRA’s allegations.