D.A. Davidson Co. a brokerage firm headquartered in Great Falls Montana has been censured by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that it (1) overcharged customers by failing to apply sales charges waivers and (2) failed to supervise its mutual fund transactions to ensure that eligible customers received applicable discounts. Letter of Acceptance Waiver and Consent No. 2016050260301 (Oct. 30, 2018).
According to the AWC, the firm sold several share classes of mutual funds that represented interests in the same securities portfolio but which contained differences in regard to the fees and charges assessed to customers. The AWC stated that the firm sold customers Class A shares, which normally contain up-front sales charges. In certain cases; however, including the one described in the AWC, waivers of sales charges could have been applied on Class A shares.
The firm reportedly failed to apply those waivers for customers that purchased mutual fund shares even though the waivers were available for customers. Instead, customers had been sold Class A shares with the up-front sales charges or had been sold other share classes containing higher expenses and fees and back-end sales charges.
The AWC stated that between January 1, 2011 and April 26, 2018, three-hundred three accounts owned by customers, including charitable organizations and retirement accounts, contained mutual fund purchases where a waiver was inappropriately not applied. Evidently, customers had been overcharged by $384,214.00 as a result.
The AWC further stated that between the 2011 and 2018 timeframe, the firm neglected to adequately supervise the sales charge waiver process for those mutual fund sales in which a waiver was applicable. Apparently, the firm pushed its responsibility onto its financial advisors for making determinations of when the sales charges would be applied. However, the firm did not set forth reasonable procedures or policies to guide financial advisors in determining when the waivers applied.
The AWC also stated that the firm failed to reasonably inform and train its advisors about the sales charge waivers being available for customers. Moreover, there were reportedly no reasonable controls implemented by the firm to identify situations where the waivers had not been applied. Consequently, FINRA found that the firm’s supervisory failures were violative of FINRA Rules 2010 and 3110.
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