Morgan Stanley Smith Barney has agreed to pay more than $1.4 million in restitution to clients who were charged excess fees for investing in 529 plans, the Financial Industry Regulatory Authority announced Thursday.
The firm, which handles billions of dollars in tax-advantaged 529 plans designed to encourage saving for educational costs, was not fined because of its “extraordinary cooperation” in correcting the situation, Finra said in the complaint.
From January 2013 through June 2018, Morgan Stanley failed to adequately supervise representatives making recommendations to customers about buying share classes of 529 savings plans, and the result was that clients did not buy shares of the most suitable plans, Finra said.
Morgan Stanley agreed to pay $1,460,518 in restitution, plus interest, for a total of $1.7 million, to the owners of 2,293 accounts. The payments ranged from a few hundred dollars to several thousand. During the time covered by the complaint, Morgan Stanley was a designated broker-dealer for 35 state-sponsored 529 plans with approximately $11 billion in customer assets.
Morgan Stanley conducted a qualitative review of its supervision of 529 plan share-class recommendations and reported problem areas, and it has taken action to correct the problems, Finra said.