As part of a recent initiative to improve compliance with rules governing share-class recommendations of 529 savings plans and related compensation, Morgan Stanley agreed to pay about $1.7 million in restitution and interest to clients who incurred excess fees in their college savings accounts, the Financial Industry Regulatory Authority said Wednesday.
FINRA explained that the wirehouse’s supervisory system “was not reasonably designed to supervise 529 plan share-class recommendations executed in certain legacy accounts or transactions made directly with 529 plans.”
Morgan Stanley’s supervisory system for 529 plan recommendations involved “grids,” which were part of its order entry systems, to identify an appropriate share-class selection, the regulatory group said.
However, the wirehouse didn’t integrate the grids with some legacy account systems until 2016, “and it did not have a process to check that the grids were applied to transactions made directly with 529 plans,” FINRA added.
“We are pleased to have resolved this matter,” a spokesperson for Morgan Stanley said in a statement.
FINRA’s self-reporting 529 plan share class program included over $2.7 million in total restitution and interest paid to clients of some 3,900 accounts. They payments arose from settlements with Morgan Stanley and B. Riley Wealth Management, as well as from 17 matters resolved through cautionary action letters.