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Regulation and Compliance > Federal Regulation > FINRA

529 Plan Share Class Crackdown Yields $2.7M for Clients

By Melanie Waddell

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The Financial Industry Regulatory Authority says the initial results of its voluntary self-reporting 529 Plan Share Class Initiative includes more than $2.7 million in restitution and interest to clients owning some 3,900 accounts.

The restitution and interest, which involved 19 firms, included two settlements and 17 matters resolved via cautionary action letters.

“All 19 firms in this initial group agreed to remediate harmed customers and to enhance their supervisory systems and procedures, where appropriate,” FINRA said.

Jessica Hopper, head of FINRA’s Department of Enforcement, said in a recent statement that the 529 initiative was launched in January 2019 “to remedy potential supervisory and suitability violations related to 529 plan share-class recommendations, and to return money to harmed investors as quickly and efficiently as possible.”

FINRA, Hopper added, expects to resolve the remaining matters in the coming year.

Specific Settlements

As part of the initiative, Morgan Stanley agreed Wednesday to pay about $1.7 million in restitution and interest to clients who incurred excess fees in their college savings accounts.

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.”

In a settlement issued Monday, B. Riley Wealth Management Inc. (BRWM) agreed to pay approximately $250,000 in restitution and interest to 529 plan customers based on the firm’s failure to have a reasonably designed supervisory system relating to its 529 plan business.

Among other findings, FINRA found that BRWM did not provide adequate guidance to its registered representatives and supervisors regarding 529 plan share-class recommendations and lacked a system to supervise transactions made directly with 529 plans.

After its voluntary disclosure to FINRA through the initiative, BRWM agreed to provide restitution to certain customers who purchased class C shares in accounts with young beneficiaries and long-term time horizons, and to improve its system and procedures.

In settling these matters, neither firm admitted or denied the charges, but each consented to the entry of FINRA’s findings.

Melanie Waddell

@Think_MelanieW

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