Merrill Lynch & Raymond James Sanctioned for Alleged 529 Plan Violations
According to the Financial Industry Regulatory Authority (FINRA), Merrill Lynch, Raymond James & Associates and Raymond James Financial Services have reportedly agreed to pay a combined $12 million in restitution to customers for alleged 529 savings plan violations.
Although earlier this year FINRA launched an initiative to encourage firms to self-report regulatory violations in connection with the 529 plans, these issues pre-dated the program.
FINRA claims that Raymond James and Merrill Lynch failed to reasonably supervise 529 plan share-class recommendations, allegedly causing customers to pay excess fees on their investments.
Raymond James & Associates has reportedly agreed to pay more than $3.8 million in restitution, while Raymond James Financial Services has reportedly agreed to pay $4.2 million, according to the AWC.
Merrill Lynch has reportedly agreed to pay at least $4 million in restitution relating to the sale of Class C shares to 529 plan accounts with young beneficiaries.
The 529 savings plans, tax-advantaged municipal securities, are designed to encourage saving for the future educational expenses of a designated beneficiary. They are typically sponsored by states, state agencies or educational institutions.
Shares of 529 savings plans are sold in different classes with different fee structures. Class A shares typically impose a front-end sales charge but charge lower annual fees compared to other classes. Class C shares typically impose no front-end sales charge but typically charge higher annual fees than Class A shares.
According to FINRA, since Class C shares may be more expensive over extended holding periods, Class A shares are frequently a more suitable option for accounts with younger beneficiaries and longer investment horizons.
FINRA alleges that Raymond James and Merrill Lynch purportedly failed to ensure that registered representatives considered the various fee structures when making 529 savings plan recommendations to customers.
Further the firms purportedly failed to establish and maintain a supervisory system and written supervisory procedures reasonably designed to supervise recommendations of share classes in 529 savings plans.
In settling the matter, Merrill Lynch and Raymond James neither admitted nor denied the charges but consented to the entry of findings, according to FINRA.
Free Consultation with a Securities Attorney
This information is publicly available on FINRA’s website and provided to you by The White Law Group. If you have concerns about your 529 savings plan please call the offices for a free consultation with a securities attorney at 888-637-5510.
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