First Kentucky Securities Corporation is a brokerage firm from Louisville Kentucky who has been censured and fined fifty thousand dollars by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that it overcharged customers by depriving them of sales charge waivers on eligible mutual fund purchases executed through the firm. Letter of Acceptance Waiver and Consent No. 2016048226101 (Mar. 5 2018).
According to the AWC, different classes of mutual funds had been sold through the firm that had represented the same securities portfolio, but which contained differences in the amount and structure of asset-based fees and sales charges that shareholders paid to invest. The AWC indicated that investors’ returns in the same securities portfolio were affected by the fees, sales charge waivers, breakpoints and sales charges for each share class. The AWC revealed that class A shares contained sales loads that could be waived in certain situations through sales charge waivers. Thus, investors that were eligible for waivers of sales charges on class A shares would not have a basis to purchase other share classes which contain loftier expenses and sales loads.
According to the AWC, even though the firm had offered waivers on class A share sales charges, it failed to process those waivers when customers had been eligible to receive them. The customers were reportedly sold class A shares which contained front-end loads, otherwise class B shares and class C shares carrying contingent deferred sales charges as well as higher expenses and fees. FINRA concluded that the firm’s actions led customers to overpay.
According to the AWC, the firm did not provide appropriate supervision of the sales charge waiver process to make sure that sales charge waivers were applied on mutual fund transactions. Apparently, financial advisors had been depended on by First Kentucky Securities Corporation to make those determinations; however, it did not utilize reasonable procedures or written policies to guide its financial advisors. Evidently, the firm neglected to ensure written procedures had been established and maintained for purposes of identifying sales charge waivers in funds for customers who were eligible for the waivers.
FINRA further noted that the firm neglected to train and notify financial advisors about waivers having been available for customers, and never set forth adequate processes to identify when customers had not been provided sales charge waivers. The AWC revealed that from January 1, 2011 to September 30, 2017, mutual fund transactions were effected in sixty-six customer accounts where there was no application of a sales charge waiver, causing customers to overpay by $52,569.00.
FINRA found that First Kentucky Securities Corporation’s conduct was violative of FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Rule 3010.
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