The Financial Industry Regulatory Authority said that LPL Financial, LLC (LPLA), Raymond James & Associates (RJF), Raymond James Financial Services, Wells Fargo Advisors, LLC (WFC), and Wells Fargo Advisors Financial Network, LLC must pay over $30M in restitution plus interest to customers who were impacted when the firms did not waive mutual fund sales charges for certain retirement and charitable accounts. According to the self-regulatory organization, between July 2009 and the end of 2014 the financial firms either improperly overcharged certain investors who had purchased Class A mutual fund shares or sold them Class B or C shares instead. The latter two come with ongoing, high back-end fees.
Mutual funds typically offer different share classes for sale. Each class has its own sales fees and charges. Although Class A shares come with an initial sales charge, they usually have lower annual fees than Class B and C shares. However, mutual funds will usually waive Class A sales charges when selling them to charities and some retirement accounts.
The broker-dealers offered these waivers for the retirement and charitable plan accounts under limited conditions. The waivers also were disclosed in prospectuses. Yet, according to FINRA, at various times since at least July 2009, the firms did not actually waive the sales charges for these customers when they were offered the Class A shares.
Because of this, contends the agency, over 50,000 eligible retirement accounts and charitable organizations either paid sales charges for the Class A shares or bought other share classes that required them to pay higher ongoing fees and other expenses. FINRA said that the firms did not properly supervise the sale of these mutual funds and depended on its brokers to offer the waiver discounts even though they weren’t properly trained.
To settle, Raymond James will pay $8.7M, Wells Fargo will pay $15 M, and LPL Financial will pay $6.M. The payments include full restitution to customers. However, the firms won’t have to pay a fine because they self-reported their activities.
LPL will also pay restitution to customers that bought or will buy mutual funds without the proper sales charge waiver. Those who are eligible will have made the share purchases between January 1, 2015 up through whenever the firm puts into place systems, procedures, and training related to the supervision of mutual fund sales and waivers.
By settling the broker-dealers are not denying or admitting to the charges.
It was last year that FINRA ordered Bank of America Corp. (BAC) unit Merrill Lynch to pay $24.4M in restitution and an $8M fine to resolve allegations that it improperly charged mutual fund sales fees to over 47,000 charities and retirement accounts. The fine and restitution were in addition to the $64.8M that Merrill had already paid back over the matter.
The SRO said that for five years going as far back as January 2006, Merrill did not give sales charge waivers, which had been promised, to many accounts. Instead, the firm depended on its financial advisers, which it purportedly improperly supervised, to provide the waivers.
Because of this, contends FINRA, some 41,000 small business retirement plans and 6,800 403(b) retirement plan accounts and charities improperly paid sales fees on Class A shares or bought other share classes that came with higher fees.