Securities America, Inc., headquartered in Lavista, Nevada, was censured by the Financial Industry Regulatory Authority (FINRA) after consenting to findings that it overcharged customers regarding mutual funds purchases, and failed to implement adequate supervisory procedures to prevent the overcharging of customers. Letter of Acceptance, Waiver and Consent, No. 2015047269801(July 29, 2016).
According to the AWC, from July 1, 2009 through July 1, 2015, the firm apparently took advantage of charitable organizations and retirement plan participants who were entitled to buy funds through Securities America without bearing an upfront commission or sales charge. The AWC stated that the firm sold funds that contained various share classes which consisted of the same securities portfolio, although consisting different overall structures and fees.
FINRA stated that a significant number of mutual funds have front-end sales charges which pertain to Class A shares, where such charges are waived for certain eligible customers. FINRA additionally noted that there is no reason for investors to purchase other share classes (such as Class B or C shares) which often carry higher fees, when such investors qualify for waivers associated with Class A shares.
Securities America, according to the AWC, disclosed to FINRA on October 8, 2015, that it failed to apply such sales charges waivers available for eligible customers, despite the availability of such as identified in fund prospectuses. Apparently, Securities America imposed front-end sales charges with Class A shares purchased. In other cases, sales charges were applied on the back-end through Class B and Class C shares which contained higher expenses. FINRA found that that 1,514 customers of the firm were disadvantaged by having to pay the higher costs to invest than required, for a total overpayment estimated at $1,386,271.00 since July 1, 2009.
The AWC also stated that Securities America had failed to develop supervisory procedures and protocol in order to adequately supervise sales charge waiver applicability for those investors who qualified. The firm apparently did not establish or implement procedures which would identify when sales charges would apply, but instead relied on financial advisors to make such determinations. Yet, the firm did not have sufficient policies and procedures in place to help financial advisors to make determinations regarding sales charge waivers.
The AWC further stated that the firm did not train the financial advisors that sales charge waivers regarding mutual funds purchases were available. FINRA found that Securities America did not create the proper supervisory procedures to uncover when waivers to sales charges were not actually applied upon purchases made by customers of mutual funds. Given the aforementioned, FINRA found the firm’s supervisory failures to be violative of NASD Rule 3010, and FINRA Rules 2010 and 3110.
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