FINRA office in New York. (Photo: Ron Pechtimaldian/ALM)
The Financial Industry Regulatory Authority says Merrill Lynch and Raymond James will pay a combined $12 million in restitution to clients due to excess 529 college savings plan fees and their failure to supervise share-class recommendations for the plans.
Merrill Lynch agreed to pay some $4 million tied to the sale of Class C shares to 529 plan accounts with young beneficiaries. Raymond James' independent-advisor channel is paying roughly $4.2 million, and its employee-advisor channel will pay about $3.8 million.
These matters concern issues that came before FINRA's 529 Plan Share Class Initiative, which was announced earlier this year; this action encouraged member firms to voluntarily self-report potential violations relating to 529 plans by April 1.
"FINRA member firms must be cognizant of all costs to their customers when recommending a product. This is particularly important where an unsuitable recommendation may cause customers to incur higher fees year-after-year, especially in the case of young beneficiaries," said Jessica Hopper, senior vice president and acting head of FINRA's Department of Enforcement, in a statement on Wednesday.
The regulator says Merrill and Raymond James neither admitted nor denied the charges and also cooperated with FINRA to resolve the matter.
529 Plan Share Classes
Since 529 plans are tax-advantaged municipal securities, their sale is governed by the rules of the Municipal Securities Rulemaking Board. They typically have Class A shares with front-end sales charges and lower annual fees or Class C shares with no front-end sales charge and higher annual fees.
