Five firms were ordered by the Financial Industry Regulatory Authority to pay restitution estimated at more than $18 million in total, including interest, to charities and retirement accounts overcharged for mutual funds.
According to a FINRA order on Tuesday, Edward Jones, Stifel Nicolaus & Co., Janney Montgomery Scott, AXA Advisors and Stephens Inc. failed to waive mutual fund sales charges for eligible charitable organizations and retirement accounts.
Under this order, Edward Jones agreed to pay $13.5 million in restitution; Stifel, $2.9 million; Janney Montgomery, $1.2 million; AXA, $600,000; and Stephens, $150,000 in restitution.
Edward Jones, Stifel Nicolaus, Janney Montgomery, AXA and Stephens neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
As FINRA explains, Class A shares typically have lower fees than Class B and C shares, but charge customers an initial sales charge. FINRA says that 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.
FINRA found that although the mutual funds available on the retail platforms of Edward Jones, Stifel Nicolaus, Janney Montgomery, AXA and Stephens offered these waivers to charitable and retirement plan accounts, at various times since at least July 2009, the firms did not waive the sales charges for affected customers when they offered Class A shares.
As a result, FINRA says more than 25,000 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.
FINRA also found that Edward Jones, Stifel Nicolaus, Janney Montgomery, AXA and Stephens failed to adequately supervise the sale of mutual funds that offered sales charge waivers. FINRA says the firms unreasonably relied on financial advisors to waive charges for retirement and eligible charitable organization accounts, without providing them with critical information and training.
None of the firms were fined because they discovered the erroneous fees themselves and reported the issue to FINRA.
Brad Bennett, FINRA’s executive vice president and chief of enforcement, said in a statement that “cooperation credit was granted to those firms that were proactive in identifying and remediating instances where their customers did not receive applicable discounts.”
As a result of Edward Jones’ review of its firm practices, the firm said in a statement, it is simplifying the mutual funds offerings for some firm-held retirement accounts to help ensure this problem doesn’t occur in the future.
“We are working to quickly refund any overcharges,” Edward Jones said in a statement. “We have cooperated fully with FINRA and are pleased the matter has been resolved.”
AXA also expressed similar sentiments in a released statement.
“At AXA, our customers come first and we strive to adhere to the best practices of our industry and to all applicable regulatory requirements,” the firm said in a statement. “We have fully cooperated with the FINRA investigation into this industrywide issue and are pleased to have reached a resolution with FINRA.”
Stifel Nicolaus and Janney Montgomery could not yet be reached for comment, and Stephens’ policy is not to comment on regulation of this kind.
In July 2015, FINRA ordered Wells Fargo Advisors; Wells Fargo Advisors Financial Network; Raymond James & Associates; Raymond James Financial Services; and LPL Financial to pay restitution for similarly failing to waive mutual fund sales charges for certain charitable and retirement accounts.
This brings the total to, collectively, an estimated $55 million in restitution to be paid to more than 75,000 eligible retirement accounts and charitable organizations as a result of those cases and the cases announced on Tuesday.
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