Five Cetera Financial Group broker-dealers reached settlements with Finra totaling $3.3 million for failing to supervise the application of mutual fund sales charge waivers to eligible clients in retirement plans and at charitable organizations.
As part of the settlements, the five broker-dealers neither admitted nor denied the allegations. The five firms are: Cetera Investment Services, Cetera Financial Specialists, First Allied Securities Inc., Summit Brokerage Services Inc., and Girard Securities Inc.,
which last week said it was shutting down as a broker-dealer to become a branch under another firm in the network, Cetera Advisor Network.
Each of the five settlements accounts for the amount that eligible clients were overcharged for the mutual fund purchases, plus interest.
The period which the firms overcharged clients ran from July 2009 to last month, according to each settlement.
The Financial Industry Regulatory Authority Inc.
earlier this year posted a notice on its website declaring a "mutual fund waiver sweep," for which the regulator requested documents and information from broker-dealers related to waivers, or reimbursements, that were available to some investors for mutual fund sales charges.
In May, Finra reached a settlement with another Cetera firm, Cetera Advisor Networks, for overcharging retirement plan and charitable organization clients close to $1.7 million since 2009.
The broker-dealers "disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase A shares in certain mutual funds without a front -end sales charge," according to Finra,,
which used identical wording in each settlement. "These eligible customers were instead sold 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."
Over the past eight years, the Cetera firms "failed to reasonably supervise the application of sales charge waivers to eligible mutual fund sales," according to Finra. "The firm relied on its financial advisers to determine the applicability of sale charge waivers, but failed to maintain adequate written policies or procedures to assist financial advisers in making this determination."
"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," said Joseph Kuo, a spokesman for Cetera Financial Group. "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."
Cetera Investment Services will pay $1.4 million in restitution to clients, while Cetera Financial Specialists will pay $572,000. First Allied and Summit Brokerage Services, respectively, will pay $877,000 and $357,000. Girard Securities will pay $103,000.
