FINRA Fines Five Brokerage Firms a Total of $18 Million For Overcharging Clients in Mutual Fund Transactions

A recent press release by The Financial Industry Regulatory Authority (FINRA) the regulator announced that it ordered five firms to pay restitution estimated at more than $18 million to affected customers for failing to waive mutual fund sales charges for eligible charitable organizations and retirement accounts. FINRA fined the following firms in its action.

Edward D. Jones & Co., L.P. – $13.5 million
Stifel Nicolaus & Company, Inc. – $2.9 million
Janney Montgomery Scott, LLC – $1.2 million
AXA Advisors, LLC – $600,000
Stephens Inc. – $150,000

As a background, mutual funds offer several classes of shares that carry different sales charges and fees. While each mutual fund is different, typically Class A shares have lower fees than Class B and C shares but charge customers a higher initial sales charge. In addition, many mutual funds waive their upfront sales charges on Class A shares for certain types of retirement accounts and for charities depending upon their offering’s program.

In the actions, FINRA found that the mutual funds available on the firms' retail platforms offered waivers to charitable and retirement plan accounts since at least July 2009 but that the firms did not waive the sales charges for affected customers purchasing Class A shares. FINRA found that more than 25,000 eligible retirement accounts and charitable organizations at these firms either paid sales charges when purchasing Class A shares or purchased other share classes that unnecessarily subjected them to higher total fees and expenses than the Class A shares would have cost the client.

FINRA findings also stated that the firms’ failed to adequately supervise the sale of mutual funds that offered sales charge waivers. FINRA found that the policies employed by the firms were unreasonably in that they relied on financial advisors to waive charges for retirement and eligible charitable organization accounts without proper training.

The latest FINRA action comes on the heels of a July 2015 action where FINRA ordered Wells Fargo Advisors, LLC; Wells Fargo Advisors Financial Network, LLC; Raymond James & Associates, Inc.; Raymond James Financial Services, Inc.; and LPL Financial LLC to pay restitution for failing to waive mutual fund sales charges for charitable and retirement accounts and pay an estimated $55 million in restitution to more than 75,000 eligible retirement accounts and charitable organizations.

The investment fraud lawyers of Gana Weinstein LLP are experienced in representing investors in cases where their broker has acted inappropriately. The firm represents investors who have suffered losses in securities arbitration and other claims. Our consultations are free of charge and the firm is only compensated if you recover.