Hightower Securities expects to be able to make a “material revision” to the $1.2 million it warned in a recent filing with the Securities and Exchange Commission that it is on the hook for and must be repaid to clients as a result of charges related to the sale of 529 college savings plans, a company spokeswoman said Monday.
The Financial Industry Regulatory Authority announced a 529 Plan Share Class Initiative early last year in which it recommended firms promptly remedy potential supervisory and suitability violations relating to advisors executing trades on behalf of their customers of 529 plans that are inconsistent with the accounts’ investment objectives, and to return money to harmed investors as quickly and efficiently as possible, Hightower pointed out in the filing.
“Upon notification, the Company has been working with FINRA to remediate the matter, including calculation of the remediation amount,” Hightower said in the SEC filing, adding it has “accrued a $1.2 million liability for the estimated remediation payments that will be made to investors impacted.”
However, the Hightower spokeswoman said Monday: “When Hightower followed FINRA’s initial guidance regarding this industry-wide self-reporting initiative, and reviewed fees related to 529 share classes, we recognized that to accurately assess client account impacts, we needed to obtain almost a decade’s worth of transactional data held at multiple fund record keepers to accurately assess client impacts.”
At the end of 2019, “we set aside a high-level remediation figure for our regulatory filing – based on a straightforward percentage of 529 assets – while we undertook a significant data mining effort with the help of an approved industry consultant,” she said, explaining: “It was in Hightower’s clients’ interests to invest our time and effort in this self-reporting exercise in order to obtain accurate remediation values and precisely address client accounts that may be impacted. Once our process is reviewed and approved by FINRA, we expect a material revision of our original set-aside figure.”
FINRA launched the 529 Plan Share Class Initiative Jan. 28, 2019, explaining in Regulatory Notice 19-04 that over the past several years, some firms have failed to reasonably supervise brokers’ recommendations of multi-share class products. FINRA had observed firms that were unable to review 529 plan transactions for suitability because they failed to keep records of those transactions or failed to capture information relevant to the suitability determination, such as the age of the beneficiary and the number of years until the funds are needed for the beneficiary’s qualified education expenses, it said.
In March 2019, FINRA went on to release a FAQ on its 529 Plan Share Class Initiative and extended the compliance dates associated with the initiative.
On July 1, 2019, Hightower notified FINRA Enforcement that it would be among the companies participating in this initiative, the firm said in its SEC filing.
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