The recent push by the
Financial Industry Regulatory Authority Inc. to return money to harmed mutual fund investors was part of what should be a never-ending effort by the financial services industry to find ways to maintain consumer faith in the marketplace.
Finra recently settled cases against several firms that could result in the return of more than $25 million to fund investors who didn't receive the benefit of net-asset-value transfer charge waivers to which they were entitled. According to Finra, certain customers eligible for NAV programs incurred front-end sales loads that they should not have paid, or purchased other share classes that unnecessarily subjected them to higher fees and the potential of contingent deferred sales charges.
New York- and Washington-based Finra said the firms involved — Merrill Lynch & Co. Inc.,
Prudential Financial Inc.,
UBS Financial Services and
Wells Fargo Co. — settled the matters without admitting or denying the allegations. Finra alleged that the firms failed to have reasonable supervisory systems and procedures in place related to NAV transfer programs.
Investors entitled to buy fund shares without a sales charge should have had charges waived, but the result was that many investors overpaid for their purchases, Finra said.
As part of the settlement in this case, Finra fined Merrill Lynch and
UBS of New York and Newark, N.J.-based units of Prudential a combined $2.4 million.
Prudential Securities received an $800,000 fine, and Pruco Securities Corp. received a $100,000 fine for improper sales of Class B shares.
UBS Financial Services, a unit of Zurich, Switzerland-based
UBS AG, was hit with a $750,000 fine for improper sales of Class B and Class C shares, according to Finra.
Finra also fined Merrill, Prudential Securities and
UBS $250,000 each for failure to have reasonable supervisory systems and procedures to identify and provide opportunities for investors to obtain sales-charge waivers through NAV transfer programs.
San Francisco-based
Wells Fargo Co. wasn't fined, "despite its alleged lack of reasonable supervisory systems and procedures relating to net asset value transfer programs, because the firm was proactive with remedial actions," according to Finra.
Wells Fargo already has paid more than $612,000 in restitution to investors related to NAV pricing. Additional restitution will be required, Finra said, though the amount has yet to be determined.
Particularly at a time when the public's faith in financial companies is being tested, this latest action by Finra shows that industry watchdogs are doing their jobs and looking out for the average investor.
"Firms have an obligation to consider all relevant factors when recommending mutual fund investments, to ensure that they recommend the share class that is most advantageous to the customer," Finra enforcement chief Susan Merrill accurately said in a prepared statement. "The supervisory problems here led not only to the sales of inappropriate mutual fund share classes, but to the failure to identify special sales-charge waiver programs on mutual fund purchases."
Making sure that markets are fair and that investors have confidence in equitable treatment should always be the top priority for the financial services industry. Making restitution to harmed investors certainly sends a great message.
