In one of the largest restitution cases of 2020, FINRA ordered Merrill Lynch to pay $7.2 million in restitution to customers who incurred unnecessary sales charges and paid excess fees in connection with mutual fund transactions Finra levied two other “supersized” restitution orders against Wells Fargo and Sagepoint Financial for costly variable annuity switches and early rollovers of Unit Investment Trusts.
“While FINRA has brought these types of cases in recent years, 2020 showed improved tangible results for protecting retail investors. We expect to see more of the same this year and in the coming years,” Rubin said.
Regulation Best Interest, which went into effect on June 30, 2020, is also likely to result in added disciplinary and enforcement actions, the attorneys said. “Initially, the SEC and FINRA focused on “good faith” compliance. This year and next, however, there will likely be enforcement investigations and cases relating to, among other things, care issues, disclosure, policies and procedures training, and conflicts. In addition, we will likely see investigations and enforcement actions regarding fee waivers and rebates available through “Rights of Reinstatement” on mutual fund purchases stemming from FINRA’s November 2020 announcement of targeted examinations,” the attorneys said.
Finra’s 529 Plan Share Class Initiative also resulted in what is likely to be ongoing investigations and higher enforcement, the firm said. Taking a page out of the SEC’s playbook, in January 2019, FINRA launched the self-reporting initiative focused on 529 plan share classes, concerned that some firms may not have adequately supervised their reps to ensure they considered the various fee structures when making 529 plan recommendations to customers.
“As of December 30, 2020, FINRA has settled with two firms and resolved 17 other matters through cautionary action letters, resulting in more than $2.7 million in restitution and interest to customers owning approximately 3,900 accounts. All 19 firms agreed to remediate harmed customers and to enhance their supervisory systems and procedures, where appropriate. Look for FINRA to release additional results relating to this initiative in 2021 that may boost its enforcement statistics,” the attorneys said.
FINRA also focused on variable annuity enforcement in 2020, reporting six variable annuity cases, with $6.1 million in fines. The number of cases decreased 67% from 18 cases brought in 2019, while fines increased more than tenfold from approximately $525,000. FINRA also ordered $5.8 million in restitution in variable annuity cases.
In the largest variable annuity case, FINRA fined Transamerica $4.4 million and ordered it to pay more than $4.3 million in restitution for, among other things, failing to supervise its registered representatives’ recommendations of variable annuities for more than six years, Eversheds Sutherland reported.