Commonwealth Financial Network a brokerage firm headquartered in Waltham Massachusetts has been censured by Financial Industry Regulatory Authority (FINRA) supported by accusations that the firm excessively charged customers on mutual fund transactions by failing to apply discounts for the customers that were eligible for them. Letter of Acceptance Waiver and Consent No. 2016049975901 (Nov. 9, 2018).
According to the AWC, several classes of mutual funds had been offered and sold to customers by Commonwealth Financial Network between July 1, 2009 and July 26, 2017, including Class A, Class B, Class C shares. Those classes of mutual funds represented the same securities portfolio but contained variances in the amount and structure of the sales charges that shareholders paid as well as the ongoing asset based fees. The investors who purchased Class A shares reportedly had to pay up-front sales charges; however, those up-front sales charges were supposed to be waived in certain circumstances. In the event that such a sales charge was waived, FINRA determined that it would not be of any advantage for other share classes to be purchased by customers.
Specifically, charitable organizations and retirement plans were typically relieved of having to pay the up-front sales charges. The AWC stated that certain mutual funds offered by the firm during the 2009 to 2017 timeframe contained sales charges waivers which were disclosed in mutual fund prospectuses. However, those waivers had not been applied by the firm for the customers that were eligible to receive them. Those customers were instead sold the Class A shares containing the up-front sales charges or sold Class B or Class C shares, which contained higher expenses, fees and back-end sales charges. The AWC indicated that customers ultimately paid more to invest as a result of the firm’s failure to apply those discounts.
FINRA stated that the firm neglected to adequately supervise the sales charges waiver application on the mutual fund sales it effected. Apparently, the firm tasked its financial advisors with making determinations of the sales charge waiver application; however, the financial advisors were not provided with adequate supervisory procedures to help them determine when and how to apply the sales charges. The firm reportedly failed to create and implement written procedures calling for the sales charge waivers to be identified within the prospectuses in situations where eligible customers were able to receive them.
Moreover, the AWC stated that the firm did not adequately educate the advisors about the availability of those sales charge waivers, and it did not set forth any reasonable measures for identifying situations where the waivers had not been applied. In sum, between July 1, 2009 and July 26, 2017, a total of 688 customer accounts contained purchases of mutual funds were a sales charge waiver had not been applied, causing those customers to collectively be overcharged by $766,295.00. FINRA found that the firm’s failure to supervise in this respect was violative of NASD Rule 3010 and FINRA Rules 3110 and 2010.
The information contained herein has been obtained from reliable sources however may not be accurate and is not guaranteed by us. Readers are encouraged to undertake their own independent investigation and evaluation of the relevant facts. All claims and allegations are subject to adjudication, decisions may be subject to appeal, and no inference is intended, nor should any inference be made from any information contained herein from any source.
This posting and the information on our website is for general information purposes only. This content should be not considered legal advice, and any responses, comments, e-mails, other communications do not form any attorney client relationship. Attorney Advertisement. See Important Disclaimer
Guiliano Law Group
Our practice is limited to the representation of investors. Over the last three decades, we have recovered more than a hundred million dollars for more than 1,000 injured investors from all over the United States and several foreign countries. We accept representation purely on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a confidential consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
For more information concerning common claims against stockbrokers and investment professionals, please visit us at securitiesarbitrations.com
To learn more about FINRA Securities Arbitration, and the legal process, please visit us at securitiesarbitrations.com
