The Financial Industry Regulatory Authority has ordered two Wells Fargo divisions, three Advisor Group independent broker-dealers and LPL Financial to pay a total of more than $5.6 million in restitution for failing to have a system in place that supervised their registered representatives’ 529 plan share-class recommendations.

All six firms also were censured but they escaped a monetary fine because of their “extraordinary cooperation” in providing substantial information in the investigations, Finra said.

The firms, according to Finra’s three letters of acceptance, waiver and consent, violated Municipal Securities Rulemaking Board (MSRB) Rule G-27, which “requires each broker, dealer, and municipal securities dealer to supervise the conduct of its municipal securities activities to ensure compliance with MSRB rules and federal securities laws.”

In the case of Wells Fargo Advisors (WFA) and Wells Fargo Advisors Financial Network (WFAFN), Finra said between January 2011 and December 2016, the firms shared written supervisory procedures that required supervisors to review the suitability of 529 plan recommendations, and identified general suitability factors for 529 plan investments, including fees and expense. The firms, Finra noted, also were designated broker-dealers for more than 20 state-sponsored 529 plans.

Finra said written supervisory procedures for 529 plans did not adequately address the relationship between account beneficiary age, the number of years until funds would be needed to pay qualified education expenses, and 529 plan share-class suitability.

The regulator explained that shares of 529 plans are sold in different classes with different fee structures. For example, Class A shares typically impose a front-end sales charge but charge lower annual fees compared to other classes, while Class C shares typically impose no front-end sales charge but has higher annual fees. “The cost of a Class A share versus a Class C share can be meaningful for an investor,” Finra noted.

Finra said WFA and WFAFN failed to reasonably supervise 529 plan share-class recommendations and to identify Class C share recommendations that were inconsistent with the share-class recommendations suggested by the age of the account beneficiary.

The firms agreed to pay $3,367,929 in restitution plus interest for an estimated $3.9 million to customers who incurred excess fees from Class C share purchase.

A Wells Fargo spokeswoman, Jackie Knolhoff, said the firms are pleased to have resolved this matter. “We enhanced our supervisory policies related to 529 share class recommendations and are making payments to clients, with interest, related to share class fees.”

Regarding the three Advisor Group firms—Royal Alliance, Sagepoint and FSC—Finra said between January 2013 and June 2018, they shared written supervisory procedures that addressed 529 plan recommendations and, also a transaction review system to supervise 529 plan share-class recommendations, both of which were not reasonably designed. They were designated broker-dealers for 30 state-sponsored 529 plans, Finra noted.

First « 1 2 » Next