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FINRA orders 5 firms to pay restitution to retirement funds

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The Financial Industry Regulatory Authority (FINRA) has ordered five firms to pay more than $18 million, including interest, in restitution to affected customers after it found that they had failed to waive mutual fund fees for eligible charitable organizations and retirement accounts.

The firms, and the restitution amounts they were ordered to pay, are the following:

  • Edward D. Jones & Co., L.P., $13.5 million

  • Stifel Nicolaus & Company, Inc., $2.9 million

  • Janney Montgomery Scott, LLC, $1.2 million

  • AXA Advisors, LLC, $600,000

  • Stephens Inc., $150,000

Although mutual fund class A shares typically have lower fees than other share classes, they generally collect an initial sales charge from customers.

However, many mutual funds waive those upfront class A charges for certain types of retirement accounts, and some waive them for charities.

FINRA found that, although the mutual funds available on the firms’ retail platforms offered these waivers to charitable and retirement plan accounts, at various times since at least July 2009, the firms did not waive those charges for affected customers when they offered Class A shares.

As a result, 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 the five firms failed to adequately supervise the sale of mutual funds that offered sales charge waivers.

Instead, the firms relied on financial advisors to waive the charges for eligible accounts, despite the fact that it failed to provide them with the information and training to do so.

The firms neither admitted nor denied the charges, but agreed to FINRA’s sanctions.

It’s not the first time that FINRA has gone after firms for this sort of thing. In July, Wells Fargo Advisors, LLC; Wells Fargo Advisors Financial Network, LLC; Raymond James & Associates, Inc.; Raymond James Financial Services, Inc.; and LPL Financial LLC were also ordered to pay restitution for similarly failing to waive mutual fund sales charges for certain charitable and retirement accounts.

Between the July action and the current one, a collective total estimated at $55 million in restitution will be paid to more than 75,000 eligible retirement accounts and charitable organizations.


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