Finra has reached settlements with 56 broker-dealers and secured $89 million in total restitution for nearly 110,000 charitable and retirement accounts as a result of its mutual fund fee waiver initiative.
The broker-dealers, including the latest to agree to a settlement on Tuesday — Park Avenue Securities and Western International Securities — failed to waive mutual fund sales charges for eligible accounts. They also failed to reasonably supervise the sale of mutual funds offering sales charge waivers, according to the self-regulator.
"This was a multi-year effort with the goal of obtaining meaningful restitution for mutual fund investors who were not afforded the sales charge waivers they were entitled to," Susan Schroeder, head of Finra’s Department of Enforcement, says in a statement.
"Ensuring that harmed customers are made whole is our highest priority and, in some instances, Finra granted credit for extraordinary cooperation to those firms who were proactive in identifying and fixing the issue and who quickly remediated affected customers,” she adds.
Finra notes that Class A shares typically 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, while some waive these charges for charities, Finra adds.
In 2015, Finra reached settlements with 10 broker-dealers that self-reported that their sales representatives failed to consider applicable sales charge waivers for charitable and retirement plan accounts that had purchased mutual funds.
Although the mutual funds available on the broker-dealers’ 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, according to Finra.
Finra says those firms also failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales.
Broker-dealer firms continued to self-report the failure to offer mutual fund fee waivers after those 2015 settlements, while Finra discovered the same problem at other firms during examinations.
In May 2016, Finra launched a targeted exam — which it refers to as a “sweep” — to review broker-dealers that had not self-reported the issue.
Finra says it conducts sweeps to gather information on emerging issues and use this information to focus exams and pinpoint an appropriate regulatory response.
The self-regulator sanctioned 11 firms through that sweep and reached settlements with another 35 firms, most of which self-reported prior to the sweep.
In total, Finra’s mutual fund fee waiver initiative led to sanctions for 56 broker-dealers, including 43 that were granted extraordinary cooperation and not fined.