FINRA Releases FAQ on 529 Plan Share Class Initiative, Extends Compliance Deadlines

FINRA launched the program on Jan. 28, 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.

One question asks whether FINRA is asking firms to review all of their 529 plan sales and to identify unsuitable transactions.

FINRA's response: No. Firms that choose to participate in the initiative should review how they have supervised sales of 529 plan shares since January 2013. Firms should assess for such matters as: whether their procedures require that appropriate supervisory personnel review share class suitability and obtain the information necessary to do so; whether they actually conducted reviews for share class suitability; and whether the firm provided training to its registered representatives so that they could make suitable recommendations.

FINRA has 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.

Another question asks: If a firm identifies a potential issue in its supervision but has not concluded that its overall supervision was unreasonable, can it participate in the initiative?

FINRA's response: Yes. FINRA encourages firms to self-report potential supervisory issues, so that FINRA staff and the firm can discuss the potential issue and whether it requires remediation. If it does require remediation, the firm will be eligible for a fine waiver if applicable. If it does not, no additional steps will be necessary.

— Check out FINRA's Top Fine Categories in 2018 on ThinkAdvisor.