Three national firms that include five broker-dealers were ordered by the Financial Industry Regulatory Authority on Monday to repay $30 million to investors over improper mutual fund charges.
Wells Fargo Advisors, Wells Fargo Advisors Financial Network (FiNet), Raymond James & Associates, Raymond James Financial Services and LPL Financial agreed Monday to pay more than $30 million in restitution, including interest, to affected customers for failing to waive mutual fund sales charges for certain charitable and retirement accounts.
Wells Fargo, Raymond James and LPL agreed to pay affected customers an estimated $15 million, $8.7 million and $6.3 million, respectively.
Wells Fargo, Raymond James and LPL neither admitted nor denied FINRA’s charges but consented to the entry of its findings. None of the firms were fined because they discovered the erroneous fees themselves and reported the issue to FINRA.
As FINRA explains, Class A shares typically have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges on Class A shares for certain types of retirement accounts, and some waive these charges for charities.
Mutual funds available on the retail platforms of Wells Fargo, Raymond James and LPL offered these waivers to charitable and retirement plan accounts under limited circumstances and disclosed them in their prospectuses.
However, at various times since at least July 2009, the three firms failed to waive the sales charges for affected customers when they offered Class A shares, FINRA says. As a result, more than 50,000 eligible retirement accounts and charitable organizations at these firms either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses.
In addition to the $6.3 million, LPL will pay restitution to eligible customers who purchase or purchased mutual funds without an appropriate sales charge waiver from Jan. 1, 2015, through the date that the firm fully implements training, systems and procedures related to the supervision of mutual fund sales waivers.
FINRA states that all three firms failed to adequately supervise the sale of mutual funds that offered sales charge waivers, and that each firm “unreasonably relied on financial advisors to waive charges for retirement and eligible charitable organization accounts, without providing them with critical information and training.”
Brad Bennett, FINRA’s executive vice president and chief of enforcement, said in a statement that “in this case, FINRA is ordering meaningful restitution to adversely affected investors consistent with our commitment to ensure that mutual fund investors get the full benefit of available fee and expense reductions. While Wells Fargo, Raymond James and LPL failed to ensure that customers received these discounts, FINRA’s sanctions acknowledge that the firms detected and self-reported these errors, and will provide full restitution to customers.”
LPL said the firm is “addressing [the pricing issue] to help uphold our commitment to serving the best interest of investors.”
LPL has also “begun providing restitution to affected investors as well as implementing process changes to further protect investors for this issue in the future.”
Raymond James noted in a statement that it also “discovered the issue internally, proactively initiated client refunds and self-reported the findings to FINRA.”
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