FINRA Forces Broker/Dealers to Pay $30M in Restitution

The Financial Industry Regulatory Authority (FINRA) said it has ordered Wells Fargo Advisors, Wells Fargo Advisors Financial Network, Raymond James & Associates, Raymond James Financial Services, Inc. and LPL Financial to pay more than $30 million in restitution, including interest, to affected customers for failing to waive mutual fund sales charges for certain charitable and retirement accounts.

Wells Fargo, Raymond James and LPL have agreed to pay affected customers an estimated $15 million, $8.7 million and $6.3 million, respectively. In addition to this amount, LPL will be paying restitution to eligible customers who purchase or purchased mutual funds without an appropriate sales charge waiver from January 1, 2015, through the date that the firm fully implements training, systems and procedures related to the supervision of mutual fund sales waivers.

Class A shares typically have lower fees than Class B and C shares, but charge customers an initial sales charge. Many mutual funds waive their upfront sales charges on Class A shares for certain types of retirement accounts, and some waive these charges for charities.

Mutual funds available on the retail platforms of Wells Fargo, Raymond James, and LPL offered these waivers to charitable and retirement plan accounts under limited circumstances and disclosed them in their prospectuses, according to FINRA’s statement. However, at various times since at least 2009, Wells Fargo, Raymond James and LPL did not waive the sales charges for affected customers when they offered Class A shares. As a result, more than 50,000 eligible retirement accounts and charitable organizations at these firms either paid sales charges when purchasing Class A shares, or purchased other share classes that unnecessarily subjected them to higher ongoing fees and expenses. 

Wells Fargo, Raymond James and LPL failed to adequately supervise the sale of mutual funds that offered sales charge waivers, FINRA said. The firms unreasonably relied on financial advisers to waive charges for retirement and eligible charitable organization accounts, without providing them with critical information and training. 

In concluding the settlements, Wells Fargo, Raymond James, and LPL neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

“In this case, FINRA is ordering meaningful restitution to adversely affected investors consistent with our commitment to ensure that mutual fund investors get the full benefit of available fee and expense reductions,” Brad Bennett, FINRA’s executive vice president and chief of enforcement, said in a statement. “While Wells Fargo, Raymond James and LPL failed to ensure that customers received these discounts, FINRA’s sanctions acknowledge that the firms detected and self-reported these errors, and will provide full restitution to customers.”