HD Vest Investment Services, a broker-dealer headquartered in Irving, Texas, was censured by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm overcharged customers within mutual funds transactions, and failed to supervise the firm’s mutual funds business in order to ensure that customers received sales charge waivers when eligible for such. Letter of Acceptance, Waiver and Consent, No. 2016048632401 (Nov. 15, 2016).
Per the AWC, from July 1, 2009 to June 30, 2016, the firm had overcharged charitable organization and retirement plan customers by not applying sales charge waivers pertaining to class A shares. The AWC stated that class A shares were one of several shares pertaining to mutual funds which the firm sold.
Apparently, the customers who qualified for waivers of sales charge waivers of class A shares were not required to pay an upfront load associated with purchases. Additionally, the AWC stated that customers who qualified for class A sales charge waivers would not have any basis to purchase other mutual fund share classes which carry higher expenses and sales loads.
Apparently, the applications of waivers of sales charges pertaining to mutual funds had not been supervised properly by the firm. Specifically, the firm depended on financial advisors in order to identify when such waivers would be applicable; however, the firm did not set forth any procedures and policies designed to help financial advisors make a determination regarding such sales charge waivers. The AWC stated that the firm also did not create or implement written protocols to detect sales charge waiver applicability within the mutual funds prospectuses for customers eligible for such.
The AWC further stated that the firm did not properly inform financial advisors and provide adequate training concerning sales charge waiver availability for customers who were eligible. The firm reportedly failed to have supervisory protocols in place to identify when sales charges waivers had not been applied for customers who were eligible based upon the customers’ purchase of mutual funds.
The AWC stated that an estimated one hundred and seventy-four customers bought mutual funds through HD Vest Investment Services, where such sales charge waivers had not been properly applied. Consequently, the firm apparently overcharged customers by an estimated $219,930.00. In addition to the censure, HD Vest was tasked with providing an estimated $261,905.00 in restitution to affected customers. FINRA found that HD Vest’s conduct was violative of FINRA Rule 2010, as well as FINRA Rule 3110 and NASD Conduct Rule 3010.
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