The NASD fined Chase Investment Services and MetLife Securities for failing to establish internal controls to supervise the sale of 529 college savings plans. The two firms were fined $500,000 apiece and ordered to reimburse customers who were affected by their supervisory failures.
The enforcement actions mark the second and third cases to come out of the NASD's sweep exam of broker-sold 529 plans. In October 2005, Ameriprise Financial was hit with a $500,000 fine and ordered to reimburse customers to the tune of $750,000.
Regulators say that registered reps aren't explaining to clients that they may qualify for state income-tax benefits by investing in their home state's plan. “Brokers must consider all relevant factors — including possible state-tax benefits, investment choices and expenses and more in determining whether a 529 plan is a suitable investment for a particular customer,” said James Shorris, head of NASD enforcement, in a prepared statement. “And brokers must disclose those relevant factors in the outcome,” he added.
Under the terms of their agreements, Chase will pay roughly $288,500 into 300 customer accounts, and MetLife will pay approximately $376,000 into about 300 of its accounts. Chase and MetLife neither admitted nor denied any wrongdoing.
