Thrivent Investment Management, Inc. a brokerage firm headquartered in Minneapolis Minnesota has been censured by Financial Industry Regulatory Authority (FINRA) based upon the firm’s consent to findings that it failed to supervise mutual fund sales with a view towards ensuring customers obtained breakpoint discounts and sales charge waivers. Letter of Acceptance Waiver and Consent No. 2016049975701 (Aug. 9, 2018).
According to the AWC, the firm sold mutual funds containing different share classes, where the share classes represented the same securities portfolio but contained variations in the structure and charges assessed to investors. Apparently, Thrivent offered class A, B, C, I, S and R shares. The AWC stated that before March of 2016, some proprietary funds that Thrivent sold offered class I shares to be purchased by retirement plans, foundations, endowments, and institution accounts, among other entities. The AWC indicated that the I shares often contained the lowest expense ratios and did not contain sales charges. Apparently, customers were eligible for I shares when they maintained between $250,000.00 and $500,000.0 in total assets with the firm.
The AWC stated that through the period of January 2011 and April of 2016, the firm neglected to adequately supervise sales charge waiver application and breakpoint discount application. Consequently, eligible customers did not receive the benefit of breakpoint discounts and sales charge waivers. Particularly, the firm neglected to ensure that: 1) customers making fund trades through non-proprietary funds receive discounts; 2) charitable organization and retirement plan customers were invested in preferred share classes when eligible; 3) customers were placed in Load Waived A Programs within the non-proprietary mutual funds; 4) retirement accounts were linked together and aggregated so customers received breakpoint discounts; and 5) institutional customers’ class A share holdings were converted to class I shares.
Evidently, the firm depended on financial advisors to determine if a sales charge waiver or breakpoint discount had applied, but did not keep in place reasonable procedures and policies for helping the advisors make determinations. Evidently, Thrivent neglected to set forth written procedures to detect sales charges waiver in the mutual fund prospectuses.
The AWC stated that in May of 2016, an examination of the firm had been initiated by FINRA, which concerned the firm’s business practices pertaining to applying sales charge waivers. Evidently, the firm confirmed that it neglected to apply both breakpoint discounts and sales charge waivers. It determined that customers were overcharged by approximately $855,465.04 as a result of breakpoint discounts not being applied. Customers were also overcharged by approximately $16,157.75 for missed sales charge waivers.
The AWC stated that Thrivent’s financial advisors had not been reasonably notified and trained by the firm concerning the availability of breakpoint discounts and waivers. Further, no reasonable controls had been approved by the firm to identify instances where the firm had not provided breakpoint discounts and waivers for customers when mutual fund purchases had been made. FINRA found that the firm’s failure to adequately supervise the firm’s mutual fund sales in this regard was violative of FINRA Rules 2010 and 3110 as well as NASD Rule 3010.
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