FINRA to Issue FAQ on 529 Share Class Initiative, May Extend Compliance Dates

In Reg Notice 19-04, "we discuss some of the supervisory issues we've seen in ongoing exams and investigations. So we're encouraging firms to check and see whether they have some of the same issues. Things like not reviewing data around what share class the firm is recommending or not providing any training so that brokers are unable to explain the impact of a share class recommendation."

FINRA, she continued, is "looking to firms to conduct a qualitative assessment, not a quantitative analysis. That's the first step. Firms might want to do some risk-based analysis of transactions as a way to test their supervision," she added, but that's not required.

Noting that the initiative is a "voluntary program," Schroeder explained that FINRA launched the program "to provide this information for firms because we see there is a problem out there that doesn't seem to be isolated, so it might be more widespread."

Providing the information to broker-dealers "gives them an opportunity to do the assessment and then work with us to get money back to customers quickly. In return, we would not fine the firm."

However, she continued, "if a firm doesn't engage in this initiative and let's say down the road FINRA examines the firm and identifies supervisory issues in their 529 sales, there wouldn't be a penalty attached to that for not self-reporting. We would go through the normal course; there may be a fine and an enforcement action, but it would be the same kind of fine and enforcement action that would have occurred had there never been an initiative."

— Related on ThinkAdvisor:

• Regulators Take Aim at Share Class Disclosure
• FINRA to Crack Down on 529 Plan Share Class Recommendations
• How Much Do Families Leave Behind by Not Using 529 Plans?