Like WFA and WFAFNS, Finra said the three firms lacked proper written supervisory procedures for 529 plans. Rather than specifically addressing 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, “they directed representatives to consider the client’s investment objectives and associated costs, including ‘mutual fund load expenses,’ when making a 529 plan recommendation,” Finra said.
They also failed to identify Class C share recommendations that were inconsistent with the share-class recommendations suggested by the age of the account beneficiary, Finra said.
The three firms agreed to pay restitution and estimated interest of $485,441 to customers who incurred excess fees from Class C share purchases.
Advisor Group did not immediately respond to a request for a comment.
As for LPL, Finra said from January 2013 to March 2020, the firm lacked policies, procedures or training regarding available sales charge waivers or special share classes that decreased the cost of 529 plan rollover transactions.
Finra said during the relevant period, LPL sold 22 “529 plans that offered sales charge waivers or Class AR shares when a customer held Class A shares in one state-sponsored 529 plan but decided to roll over the shares into another state’s 529 plan.” But the firm failed to “establish and maintain a system to determine that the waivers were applied to each eligible transaction or that eligible customers received Class AR shares.”
Finra explained that customers’ investment returns are affected by the different sales charges, waivers, and fees associated with 529 plans. Therefore, customers who qualify for a Class A sales charge waiver or a Class AR share due to a rollover would not pay the front-end sales charge associated with new Class A share purchases.
“Specifically, LPL had no policies or procedures to identify those 529 plans that offered rollover sales charge waivers or Class AR shares. The firm failed to adequately notify and train its representatives regarding the availability of sales charge waivers and Class AR shares,” Finra said.
As a result, LPL overcharged customers $982,354 in front-end sales charges because it failed to apply available sales charge waivers or recommend Class AR shares to 5,246 transactions out of a total of 21,433, with an aggregate principal value of about $28 million, Finra said.
LPL agreed to pay restitution plus interest in the amount of $1,203,392.
In response, the firm issued a statement saying, “LPL takes our supervisory obligations seriously. We have fully cooperated with FINRA throughout this industry-wide self-reporting initiative and have implemented new policies, procedures, and training to strengthen our capabilities related to this important work.”