FINRA Sanctions Western International Securities for Mutual Fund Overcharges
According to the Financial Industry Regulatory Authority (FINRA) on July 16, the regulator has reportedly censured and fined Western International Securities, a broker dealer in Pasadena, California for overcharging customers on mutual fund transactions placed in customers’ accounts.
According to the Letter of Acceptance, Wavier & Consent (AWC), Western International Securities allegedly offered a variety of mutual fund share classes to customers. These mutual fund share classes contained differences in sales charges and structure even though they represented interests in identical securities portfolios.
According to FINRA’s findings, in certain situations where Class A sales charges waivers could be applied for mutual fund purchases, it would be unreasonable for the customer to invest in other share classes containing higher expenses or sales loads. Apparently some mutual funds available on Western International Securities’ platform purportedly offered waivers on sales charges but were allegedly not applied by the firm when mutual fund purchases had been executed.
Because some of the customers were allegedly sold Class B or C shares containing higher fees and back-end sales charges, or Class A mutual fund shares containing up-front sales charges, FINRA reportedly determined that the customers had been disadvantaged by the firm by having to pay the unnecessary fees.
FINRA also alleged that from January 1, 2011 to January 1, 2017, there was no adequate supervision system used by the firm in reference to sales charge waiver applications.
Although financial advisors were instructed by the firm to identify if a sales charge applied for a given transaction, there reportedly were no policies or procedures in place to help them to identify whether to apply the sales charges waivers.
According to FINRA’s findings, there was a lack of written supervisory procedures created and implemented by Western International Securities for advisors to refer to in order to determine sales charge waiver applicability.
Western International Securities also allegedly failed to train employees on sales charge waiver applicability.
FINRA’s findings state that according to Western International, forty customers were overcharged by an estimated total of $305,000.00. FINRA reportedly censured and fined the firm $75,000 and requested they provide remediation to Eligible Customers.
For FINRA’s full findings see FINRA No. 2017056440501.
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