Finra cites Cetera for mutual fund sales charge improprieties

Retirement plans and charitable organizations were sold higher-cost share classes though they were eligible for lower-cost shares

May 4, 2017 @ 2:49 pm

By InvestmentNews

Cetera Advisors Network has signed a letter of acceptance, waiver and consent with Finra acknowledging that its advisers sold higher-cost mutual fund shares to retirement plans and charitable organizations instead of lower-cost versions for which those customers were eligible.

In its letter, the Financial Industry Regulatory Authority Inc. said that between July 1, 2009 and Jan. 1, 2017, Cetera "failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that eligible customers who purchased mutual fund shares received the benefit of applicable sales charge waivers."

While some of the mutual funds available on Cetera's platform offered waivers for retirement plans and charities and disclosed those waivers in their prospectuses, Cetera "failed to apply the waivers to mutual fund purchases made by eligible customers and instead sold them Class A shares with a front-end sales charge or Class B or C shares with back-end sales charges and higher ongoing fees and expenses. These sales disadvantaged eligible customers by causing such customers to pay higher fees than they were actually required to pay," the Finra letter stated.

Also in its letter, Finra stated that it recognizes Cetera's "extraordinary cooperation" because it initiated an investigation of the matter before it was detected by a regulator and then promptly established a remediation plan for the customers who did not receive appropriate sales charge waivers. Finra said the firm also reported the matter to regulators, took prompt action to correct the conduct and used corrective measures to revise its procedures to avoid recurrence of the misconduct.

In response to a request for comment, Joe Kuo, a spokesperson for Cetera, said: "We identified and reported this matter to Finra, and voluntarily elected to refund sales charges to eligible clients prior to concluding the agreement with Finra. We are moving forward with the payments to clients, and are pleased to conclude a matter that has also affected many other Finra member firms. Beyond this, we do not publicly discuss regulatory matters."

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