Merrill, Raymond James to Pay $12 Million for 529 Plan Sales Violations
The retail brokerage units of Merrill Lynch and Raymond James Financial agreed to pay more than $12 million to customers who were sold unsuitable fund share classes in 529 college savings account plans, the Financial Industry Regulatory Authority said on Wednesday.Raymond James will pay $4.2 million to customers of independent brokers affiliated with its Raymond James Financial Services unit and another $3.8 million for unsuitable class sales in the state-sponsored plans by brokers at its Raymond James & Associates employee division. The fines for supervisory lapses applied to sales between January 2008 and March 2017, Finra said.
Merrill Lynch agreed to pay $4 million for similar supervisory failures between January 2011 and December 2015, according to the securities industry’s self-regulator.
Neither Merrill nor Raymond James had systems that required brokers to evaluate the age of plan beneficiaries nor the number of years expected for withdrawals prior to recommending a share-class purchase, Finra said. That resulted in sales of Class C mutual fund shares rather than Class A shares that are more cost effective for younger beneficiaries.
The firms settled without admitting or denying Finra’s findings, and the regulator said the monetary sanctions reflected Merrill and Raymond James’ “extraordinary cooperation” with its investigators. The alleged violations predated Finra’s 529 Plan Share Class Initiative announced this year that encourages member firms to voluntarily self-report potential violations relating to 529 plans.
The settlement comes amid a heightened enforcement focus at Finra and the Securities and Exchange Commission on sales of mutual fund share classes that are more expensive than comparable classes because they pay trailing commissions to brokers and/or firms.
“FINRA member firms must be cognizant of all costs to their customers when recommending a product,” Jessica Hopper, head of FINRA’s Department of Enforcement, said in a prepared statement. “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.”
Merrill spokesman William Halldin said that the firm enhanced its procedures for supervising 529 plan sales “[e]ven prior to Finra’s involvement.”
Spokespeople at Raymond James did not return a request for comment.