Cambridge Investment Research, Inc., a broker-dealer headquartered in Fairfield, Iowa, has been censured by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm overcharged charitable organization and retirement account customers in connection with mutual funds transactions. Letter of Acceptance, Waiver and Consent, No. 2015046952401 (Dec. 17, 2016).
According to the AWC, Cambridge provides customers with mutual funds that contain various classes of shares, where such classes are comprised of different structures, asset based fees, and sales charges. The AWC indicated that the features of such share classes, which included expenses, fees, and waivers of sales charges, are detailed in funds’ statement of additional information or prospectus. Investors’ returns are evidently affected by the fees, waivers, breakpoint discounts, and sales charges associated with the various share classes.
The AWC detailed that sales charge waivers are often provided for investors who purchase class A shares under certain circumstances, such as when such shares are purchased via charitable organizations and retirement plan customers. Apparently, rather than the firm providing eligible customers with sales charge waivers, the firm subjected customers with upfront sales charges associated with Class A share purchases or back end sales charges associated with Class B or C share purchases. As such, FINRA found that the firm’s customers had been disadvantaged.
The AWC revealed that from July 1, 2009, to July 1, 2015, the application of waivers of sales charges pertaining to certain mutual funds transactions had not been properly supervised by the firm. Apparently, Cambridge depended on financial advisors to make determinations regarding the sales charge waiver applicability; however, the firm never set forth reasonable mechanisms and policies geared to help advisors determine applicability of such waivers.
The AWC reported that the firm never created and implemented any written policies and procedures which were designed to detect the appropriate waivers of sales charges to apply for customers that were eligible for such based upon the funds’ prospectuses. The AWC further stated that financial advisors had not been trained or even notified in a reasonable manner by the firm concerning waivers that were available for customers that were eligible for such. Moreover, Cambridge reportedly failed to set forth adequate protocols to identify situations in which eligible customers had not been provided such waivers upon purchasing mutual funds.
The AWC revealed that since July of 2009, an estimated three hundred and twenty-eight customers had not received a sales charge waiver when eligible for such. Consequently, the customers had been reportedly overcharged by nearly $182,259.00. The AWC stated that the firm’s supervisory failures in this regard were violative of FINRA Rule 2010, Rule 3110, as well as NASD Conduct Rule 3010.
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