Two broker-dealers agreed to pay about $1 million in restitution to settle Finra allegations that they overcharged clients on mutual fund sales.
The charges against the firms are part of a multiyear focus by Finra on mutual fund sales violations that has led to settlements with 56 broker-dealers and $89 million in restitution for nearly 110,000 charitable and retirement accounts, Finra said.
All of the firms, including the two firms who agreed to settlements on Wednesday, failed to waive mutual fund sales charges for the eligible accounts and failed to reasonably supervise the sale of mutual funds offering sales charge waiversm, according to Finra.
The two firms named in the most recent Finra settlements were New York-based Park Avenue Securities, which will pay $640,550 in restitution to investors, and Western International Securities in Pasadena, Calif., which will pay $375,000.
“This was a multiyear effort with the goal of obtaining meaningful restitution for mutual fund investors who were not afforded the sales charge waivers they were entitled to,” said Susan Schroeder, Finra executive vice president of enforcement. She added that Finra granted credit for firms that cooperated with the investigations and were proactive in identifying and fixing sales issues.
Finra regulatory sweeps for mutual fund share class fee violations have been going on since 2015.
Mutual funds offer several classes of shares, each with different sales charges and fees. Typically, Class A shares 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.
Initially, in 2015, Finra reached settlements with 10 member firms who self-reported to Finra that their sales representatives failed to consider applicable sales charge waivers for charitable and retirement plan accounts that had purchased mutual funds.
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.