Western International Securities a securities broker deal headquartered in Pasadena California has been censured and fined $75,000.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that the firm overcharged customers on mutual fund transactions placed in customers’ accounts. Letter of Acceptance Waiver and Consent No. 2017056440501 (July 16, 2019).
According to the AWC, a variety of mutual fund share classes were offered to customers by Western International Securities. Mutual fund share classes contained differences in sales charges and structure even though they represented interests in identical securities portfolios. FINRA stated that investors’ returns differed when accounting for fees, waivers, breakpoints and sales charges. The AWC noted that in certain situations where Class A sales charges waivers could be applied for mutual fund purchases, it would be unreasonable for the customer to invest in other share classes containing higher expenses or sales loads.
The AWC stated that some mutual funds available on Western International Securities’ platform offered waivers on sales charges. Even though these waivers had been available, they were not applied by the firm when mutual fund purchases had been executed. Instead, the customers were sold Class B or C shares containing higher fees and back-end sales charges, or Class A mutual fund shares containing up-front sales charges. FINRA determined that the customers had been disadvantaged by the firm through having to pay the unnecessary fees.
The AWC also indicated that from January 1, 2011 to January 1, 2017, there was no adequate supervision system used by the firm in reference to sales charge waiver applications. Evidently, financial advisors were instructed by the firm to identify if a sales charge applied for a given transaction. Yet, those advisors had no policies or procedures to turn to in order to aid them in determining whether to apply the sales charges waivers. Moreover, FINRA noted that there were no written supervisory procedures created and implemented by Western International Securities directing advisors to refer to mutual fund prospectuses for determining any sales charge waiver applicability.
The AWC additionally stated that the financial advisors who Western International Securities depended on failed to be trained by the firm on sales charge waiver applicability. And there were no mechanisms used by the firm to identify when the customers had not been provided a sales charge waiver for eligible purchases. Ultimately, the firm revealed that forty customers were overcharged by an estimated total of $305,000.00. FINRA found the firm’s failure to supervise its mutual fund sales charge waivers to be violative of FINRA Rules 2010 and 3110 as well as National Association of Securities Dealers (NASD) Rule 3010.
