56 Brokerage Firms to Pay $89M to Retirement and Charitable Accounts

The Financial Industry Regulatory Authority (FINRA) announced that because of its mutual fund waiver initiative, it has arrived at a settlement with 56 broker-dealers that will provide almost 110,000 retirement and charitable accounts with $89M in restitution.

Two of the firms, Western International Securities and Park Avenue Securities, settled on the same day that the self-regulatory organization (SRO) announced the multi-firm resolution. According to FINRA, the brokerage firms neglected to wave mutual fund sales charges for accounts that were eligible and they did not properly supervise the  sales.

FINRA’s Mutual Fund Waiver Initiative

FINRA launched its mutual fund waiver initiative in 2016 after arriving at a settlement with 10 member firms that self-reported how, going as far back as 2009, their registered representatives did not always apply sales waivers when warranted to the accounts of charitable and retirement plan accounts that bought mutual fund shares.

While mutual funds are offered in different share classes and usually charge a sales fee upfront, a lot of the funds will waive the upfront fee on the more expensive Class A shares for certain retirement accounts and charities.

The SRO also found that the firms had failed to adequately supervise these transactions, which could have helped to ensure that the mutual fund sales waivers were granted.

Five of the firms that self-reported collectively paid over $30M in restitution

• • Raymond James Financial Services (RJF)
  • Wells Fargo Advisors (WFC)
  • Raymond James & Associates
  • Wells Fargo Advisors Financial Network
  • LPL Financial (LPLA)

Several months later, Edward Jones, AXA Advisors, Janney Montgomery Scott, Stifel Nicolaus & Company (SF), and Stephens Inc. collectively agreed to pay $18M in restitution to charitable and retirement accounts, also for mutual fund fee waiver valuations.

FINRA’s initiative has been a targeted look into firms that fail to self-report when they neglect to offer eligible clients mutual fund fee waivers. However, with this latest $89 settlement, most of the firms did self-report the mutual fund waiver violations. As a result of their “extraordinary cooperation,” 43 of the firms were not fined. The remaining 13 firms were ordered to collectively pay $1.3M in fines.

Mutual Fund Waivers

Not waiving the mutual fund charges or recommending that a customer buy a more expensive mutual fund share class when there is a less costly, comparable alternative available causes a customer to pay more.

For example, in another recent securities case, FINRA fined Texas-based broker-dealer Kestra Investment Services $225K for failing to give eligible retirement and charitable accounts the applicable sales waivers and of selling costlier share classes to over 3200 customers. As part of the settlement, Kestra consented to repay affected customers around $1.9M, including interest.

Mutual Fund Claims

If you feel that your broker and/or brokerage firm either did not apply the waiver your mutual fund transaction qualified for or that he/she made an improper recommendation to you, please contact our mutual fund investor fraud lawyers today.

You may have grounds for filing your own mutual fund claim. Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) would like to offer you a free, no-obligation case consultation.