Washington, DC — NASD announced today that it has ordered Ameriprise Financial Services, Inc. of Minneapolis – formerly American Express Financial Advisors – to pay a fine of $500,000 for failing to adequately supervise the firm's sales of 529 plans. NASD also ordered the firm to pay approximately $750,000 to compensate more than 500 customer accounts disadvantaged by those supervisory failures. The conduct at issue occurred when the firm was known as American Express Financial Advisors.
The enforcement action announced today is the first to result from NASD's recent fact-finding sweep examining sales of the popular college savings plans.
529 college savings plans are tax-advantaged investment programs designed to help parents and others pay for qualified higher education costs. The plans offer families the opportunity to obtain growth and distribution of earnings that are free from federal taxes. Each of the 50 states and the District of Columbia currently offers at least one 529 plan – more than 80 plans are available in all. Federal tax advantages apply to all 529 college savings plans, while 26 states and the District of Columbia currently offer varying tax incentives as well – meaning that state tax treatment can be an important consideration for investors in deciding which plan to select. 529 plans are subject to regulation by the Municipal Securities Rulemaking Board, whose rules are enforced by NASD.
"529 college savings plans play an increasingly important role in enabling families to save for college. NASD has long been concerned that investors understand the differences between the many different 529 plans that are being offered today and choose a plan that is right for them," said NASD Vice Chairman Mary L. Schapiro. "These are complex investments, and individual investors need to consider a number of factors when choosing a 529 Plan – including its performance, investment choices, fees and expenses and its tax implications."
NASD's investigation showed that from May 2001 through the end of 2004, Ameriprise sold over $1.1 billion of 529 plans to more than 138,000 customer accounts, at a time when the firm's supervision of 529 sales was inadequate. NASD found that the firm's procedures during this period were not reasonably designed to achieve compliance with suitability obligations in the sale of 529 plans. In fact, from May 2001 until October 2003, when the firm sold over $625 million of 529 plans, most of the firm's procedures for sale of 529 plans were simply general compliance requirements relating to the sale of all products offered by Ameriprise. Although Ameriprise did adopt certain procedures in October 2003 relating specifically to the sale of 529 plans, NASD found that those procedures were not adequate to address the firm's suitability obligations.
