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October 27, 2015 at 10:40 AM
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.”
