Multiple Financial Industry Regulatory Authority (FINRA) member broker dealers, including Robert W. Baird & Co, Inc., BB&T Securities, LLC., U.S. Bancorp Investments, Inc., Fifth Third Securities, Inc., and PNC Investments LLC, were recently censured and ordered to pay restitution to customers after consenting to findings that the firms’ overcharged customers in mutual funds purchases, and failed to implement satisfactory supervisory procedures to prevent customers from being overcharged.
According to the Acceptance, Waiver and Consent documents, FINRA noted that a significant number of mutual funds have front-end sales charges which pertain to Class A shares, where such charges are waived for certain eligible customers. FINRA also noted in the AWCs that there is no reason for investors to purchase other share classes (such as Class B or C shares) which often carry higher fees, when such investors qualify for waivers associated with Class A shares. The firms at issue, according to the AWCs, apparently had such sales charges waivers available for customers, and had disclosed the availability of such within fund prospectuses.
The AWCs indicated that since 2009, the firms at issue had not applied such waivers for customers who were eligible, but rather, imposed front-end sales charges with Class A shares purchased. In other cases, sales charges were applied on the back-end through Class B and Class C shares – which contained higher expenses. FINRA found that that customers of each firm were disadvantaged by having to pay the higher costs to invest than required.
The AWC documents also stated that the firms had failed to adequately supervise sales charge waiver applicability for those investors who qualified. The firms reportedly did not establish or implement procedures which would identify when sales charges would apply pursuant to prospectuses that called for such, but instead relied on such determinations to be made by financial advisors.
FINRA also found that the firms had not developed the adequate supervisory protocol to detect circumstances in which sales waivers were not provided to such customers. FINRA found that the firms’ supervisory failures constituted violations of FINRA Rule 2010, NASD Conduct Rule 3010, and FINRA Rule 3010.
Based on the foregoing, Robert W. Baird & Co. was censured by FINRA, and agreed to provide an estimated $2,100,000.00 in restitution to address the amount that eligible customers, who were qualified for the sales charge waivers, were overcharged. Letter of Acceptance, Waiver and Consent, No. 2015045594601 (Apr. 14, 2016).
Likewise, BB&T Securities, LLC was censured by FINRA, and agreed to provide an estimated $1,401,486.77 in restitution to overcharged customers. Letter of Acceptance, Waiver and Consent, No. 2015046355101 (Apr. 21, 2016). U.S. Bancorp Investments, Inc. was censured by FINRA, and agreed to provide an estimated $100,401.00 in restitution to overcharged customers. Letter of Acceptance, Waiver and Consent, No. 2015046401801 (Apr. 20, 2016).
Fifth Third Securities, Inc. was censured by FINRA, and agreed to provide an estimated $355,403.00 in restitution to overcharged customers. Letter of Acceptance, Waiver and Consent, No. 2015046481601 (Apr. 14, 2016). Finally, PNC Investments, LLC was censured by FINRA, and agreed to provide an estimated $224,750.00 in restitution to overcharged customers. Letter of Acceptance, Waiver and Consent, No. 2015047865101 (Apr. 11, 2016).
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