UBS Financial Services and MML Investors Services have been ordered by the Financial Industry Regulatory Authority to pay a total of more than $5.5 million in restitution for failing to have a system in place that supervised their registered representatives’ 529 plan share-class recommendations.
The firms are among several, including Wells Fargo and LPL Financial, that were sanctioned this week for running afoul of Finra’s Municipal Securities Rulemaking Board (MSRB) Rule G-27, which “requires each broker, dealer, and municipal securities s and federal securities laws.”
They also were censured but they escaped a monetary fine because of their “extraordinary cooperation” in providing substantial information in the investigations, according to Finra’s letter of acceptance, waiver and consent.
Finra said UBS's supervisory system was unreasonable and failed to identify potentially unsuitable 529 plan share-class recommendations. Finra said from January 2013 through June 2018, “UBS did not subject initial 529 plan recommendations at account opening to the supervisory controls on its order entry platform. Instead, all new 529 plan accounts were opened directly with plans and then linked to the UBS platform.” That meant that the firm applied its mutual fund share-class suitability controls to subsequent 529 plan recommendations, which were not tailored to 529 plans.
Finra explained that for initial and subsequent 529 share-class recommendations, UBS representatives were required to follow the firm's written supervisory procedures for 529 plans, which stated that they “should consider the age of the beneficiary and the number of years until the funds would be needed in determining which investment option was most appropriate.”
But that was not the case. “UBS did not reasonably supervised 529 plan share-class recommendations,” Finra said.
UBS agreed to pay restitution plus interest in the amount of $4.8. to customers who incurred excess fees from 529 plan Class C share purchases.
In response, UBS issue a statement saying, “We are pleased to have resolved this matter.”
In the case of MML, Finra said from January 2013 to March 2017, the firm failed to properly guide representatives regarding the share-class suitability factors specific to 529 plan investments when recommending the plans. The firm also failed to provide supervisors with the necessary information to evaluate the suitability of 529 share-class recommendations.
Specifically, Finra said, the firm’s procedures did not address the relationship between account beneficiary age, the number of years until funds would be needed to pay qualified higher education expenses, and 529 plan share-class suitability. “As a result, supervisors approved numerous 529 plan C share transactions without having access to or considering beneficiary age, a relevant factor in evaluating the suitability of 529 plan share-class recommendations.”