The National Association of Securities Dealers has levied more than $7.75 million in fines against 8 broker-dealers.[@@]
The NASD, Washington, says the companies fined directed customers to certain funds in exchange for extra commissions.
The NASD says all of the cases involve apparent violations of its Anti-Reciprocal Rule, which bars brokers from favoring the sales of a mutual fund on the basis of commissions paid by the firm and prohibits a firm from recommending funds or establishing preferred lists of funds in exchange for receipt of directed brokerage.
“We continue to pursue conduct which puts the interests of firms ahead of the interests of customers,” says NASD Executive Vice President Barry Goldsmith. “NASD’s prohibition on the receipt of directed brokerage is designed to eliminate these conflicts of interest in the sale of mutual funds, whose costs are paid not by the mutual fund company, but by the funds’ shareholders.”
The NASD says 7 of the firms involved operated “preferred partner” or “shelf space” programs and that the other firm is a mutual fund distributor that paid to participate in shelf space programs. The NASD says the programs violated the broker-dealers’ obligation to consumers.
The broker-dealers fined are National Planning Corp. Inc., Santa Monica, Calif., and 3 National Planning broker-dealer affiliates. National Planning is a unit of Jackson National Life Insurance Company, Lansing, Mich., a unit of Prudential P.L.C., London.
National Planning and its subsidiaries were fined $3.8 million, according to the NASD.
The NASD says National Planning gave double production credits for sales of certain mutual funds and used those credits to determine who could attend a rewards conference.
“As an organization, we have taken action to address these matters and comply with all regulatory guidelines,” National Planning says in a statement. “The company has cooperated in a timely and efficient manner with the NASD since the on-set of the investigation, and will continue to do so as necessary.”
National Planning says it and its broker-dealer units will “continue to focus on transparent and comprehensive enforcement of all compliance regulations.”
The other companies receiving fines include Lincoln Financial Advisors Corp., a unit of Lincoln National Corp., Philadelphia; Commonwealth Financial Network, Waltham, Mass., Mutual Service Corp., West Palm Beach, Fla.; and Lord Abbett Distributor L.L.C., Jersey City, N.J.
Lincoln spokesman Thomas Johnson declined to comment, as did Lord Abbett spokesman Jason Farago. Representatives for Mutual Service and Commonwealth Financial were not immediately available for comment.
The actions taken by the NASD are part of a larger investigation into directed brokerage practices. The self-regulatory group announced $34 million in directed brokerage settlement fines in June.