56 Settlements with Member Firms & $89 Million in Restitution
According to a press announcement on Wednesday, the Financial Industry Regulatory Authority (FINRA) has reached settlements with 56 member firms and obtained a total of $89 million in restitution for nearly 110,000 charitable and retirement accounts as a result of its mutual fund fee waiver initiative.
The firms involved reportedly failed to waive mutual fund sales charges for the eligible accounts and failed to reasonably supervise the sale of mutual funds offering sales charge waivers.
According to FINRA, the purpose of this “multi-year effort” was to ensure harmed investors who were not afforded the sales charge waivers they were entitled to, would be made whole again.
Mutual funds have classes of shares, each with different sales charges and fees. Class A shares typically have lower fees than Class B and C shares, but charge customers an upfront sales charge. Many mutual funds waive their upfront sales charges on Class A shares for certain types of retirement accounts, and some waive these charges for charities.
FINRA found that although the mutual funds available on the firms’ retail platforms offered these fee waivers to charitable and retirement plan accounts, at various times dating back to at least July 2009, the firms did not waive the sales charges when they offered Class A shares to these customers. FINRA also found that these firms failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales.
After FINRA discovered the problem at other firms during examinations, the regulator launched a sweep in May 2016, to conduct a review of a group of firms that had not self-reported the issue.
FINRA reportedly sanctioned 11 firms through the sweep, and reached settlements with another 35 firms, most of which self-reported prior to the sweep. In total, FINRA sanctioned 56 firms for failing to waive mutual fund sales charges for eligible charitable organizations and retirement accounts, and failing to reasonably supervise the area. Of the 56 firms sanctioned, 43 were granted extraordinary cooperation and not fined.2
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