Finra targeting mutual fund overcharges in broker-dealer sweep

Regulator is looking into whether firms have a process and supervisory procedures in place to waive fees

May 18, 2016 @ 11:39 am

By Greg Iacurci

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Finra announced this week it is conducting targeted exams related to mutual fund overcharges by brokerage firms.

The Financial Industry Regulatory Authority Inc. posted a notice on its website declaring a “mutual fund waiver sweep,” for which the regulator requests documents and information from broker-dealers related to waivers, or reimbursements, available to some investors for mutual fund sales charges.

Some broker-dealers have agreements in place with mutual fund providers that offer these waivers to eligible accounts. Among the items Finra is looking into is whether firms have a process and supervisory procedures in place to ensure waivers are provided. Failure to provide the waivers means investors are being overcharged for the funds they purchase.

Finra uses such targeted exams to gather information and carry out investigations. The information is used to "focus examinations and pinpoint regulatory response to emerging issues," according to Finra's website.

Notices were sent to about 20 firms, said Finra spokeswoman Michelle Ong.

The time period in question is January 1, 2011, to December 31, 2015.

Finra has assessed several penalties over the last year for mutual fund overcharges. Most recently, PNC Investments agreed in April to pay restitution of $225,000 for failing to apply waivers for investors in some mutual funds. Five firms — Edward Jones, Stifel Nicolaus & Co., Janney Montgomery Scott, Axa Advisors and Stephens Inc. — were similarly ordered last October to reimburse clients a total of $18.4 million for charging them improper fees for mutual funds.

Last July, Finra ordered Wells Fargo, Raymond James and LPL Financial to pay about $30 million in restitution for failing to waive mutual fund charges.

The allegations in these specific cases centered largely on waivers for Class A mutual fund shares. These fund share classes often waive their sales loads for retirement accounts and charities.

Firms targeted in the sweep must provide documents and information to Finra on or before June 10, 2016. The inquiry shouldn't be “construed as an indication that Finra or its staff has determined that any violations of federal securities laws or Finra, NASD, NYSE, or MSRB rules have occurred,” according to the notice.

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