Affiliated Broker-Dealers Fined for 529 Plan Rollover Violations

Three affiliated broker-dealers settled FINRA charges for failing to supervise the use of certain sales charge waivers when rolling over customer tax-advantaged state-sponsored securities plans ("529 plans") from one state to another.

According to FINRA, the broker-dealers' supervisory policies did not flag the potential availability of Class A sales charge waivers or Class AR shares for 529 plan rollovers, nor did the broker-dealers train their representatives on how to identify instances where using sales charge waivers or Class AR shares would be appropriate. FINRA said that the supervisory failures resulted in customers paying unnecessary fees to rollover 529 plans.

FINRA determined that the broker-dealers violated MSRB Rule G-27(a)-(b) ("Supervision"). FINRA recognized the "extraordinary cooperation" of each firm. FINRA said that the firms self-initiated an internal investigation prior to FINRA intervention, conducted an extensive review of their programs once issues were identified and promptly established a plan to remediate the issue. FINRA said that the broker-dealers also provided ongoing assistance throughout the investigation.

To settle the charges, each broker-dealer agreed to (i) a censure, (ii) restitution of $122,845, $234,831 and $156,903, respectively, and (iii) undertakings to revise its supervisory policies to be in compliance with MSRB Rule G-27.