The Financial Industry Regulatory Authority ordered LPL Financial, Wells Fargo Advisors and Raymond James to pay a combined $30 million in restitution to clients who were wrongly sold more expensive classes of mutual funds over the past five years.
Wells Fargo Advisors, LPL Financial, and both Raymond James & Associates and Raymond James Financial Services failed to waive mutual fund sales charges for some clients' retirement accounts, and accounts held by charities, and will pay back an estimated $15 million, $6.3 million and $8.7 million, respectively. But because the firms self-reported the issue and cooperated with FINRA, the regulator did not issue additional sanctions against the firms.
“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,” Brad Bennett, FINRA’s executive vice president and chief of enforcement, said Monday.
Some mutual funds waive their upfront sales charges for Class A shares sold to charities or within retirement accounts. Class A shares generally have lower management fees than Class B or C shares, but charge a front-end sales load.
The mutual funds offered on the firms’ platform disclosed these waivers on their prospectuses, but the firms failed to apply them. More than 50,000 eligible retirement accounts, as well as charitable organizations with accounts at these firms, were effected, either unnecessarily paying sales charges when purchasing Class A shares or purchasing other share classes that had higher ongoing fees and expenses.
“As noted by FINRA, Raymond James discovered the issue internally, proactively initiated client refunds and self-reported the findings to FINRA. Given the firm's extraordinary cooperation, FINRA waived any fines which would have otherwise been assessed. We are pleased to have the issue resolved,” Steve Hollister, director public communications at Raymond James Financial said in a statement Monday.
Raymond James mailed the rebate to clients with closed accounts in April. Current clients will have the rebates automatically deposited into their accounts, firm spokeswoman Anthea Penrose said.
LPL Financial has also started paying back clients and said they will change internal processes so it doesn't happen in the future, Peter Gilchrist, spokesman for the firm, said Monday.
“LPL self-reported this issue, and we are addressing it to help uphold our commitment to serving the best interest of investors. Importantly, there are no fines associated with this agreement as a result of our ongoing efforts to ensure a proper resolution of this issue for investors,” Gilchrist said.
Wells Fargo declined to comment.
Monday’s restitution order follows FINRA’s increased scrutiny on fund fees and last year’s enforcement action against Merrill Lynch. In June 2014, FINRA fined Merrill Lynch $8 million and required the firm to repay $89 million to investors for failing to waive mutual fund sales charges on Class A shares for charities and retirement accounts.
