In May 2016, FINRA published a targeted exam letter issued to certain unspecified broker-dealers in connection with FINRA’s examination of whether member firms failed to provide or offer sales charge waivers to eligible accounts, including with respect to retirement accounts and charitable organizations. The mutual fund waiver sweep follows the identification of fund sales charge discounts and waivers as a focus area in each of the last two annual regulatory and examination priorities letters issued by FINRA. In addition, over the past year FINRA has accepted Letters of Acceptance, Waiver and Consent (AWCs) from several firms settling alleged rule violations concerning the firms’ failure to establish and maintain a supervisory system and procedures reasonably designed to ensure that eligible customers who purchased mutual fund shares received the benefit of applicable sales charge waivers. In this connection, firms including AXA Advisors, LLC, Edward D. Jones & Co., L.P., LPL Financial LLC, Raymond James & Associates, Inc., Stifel Nicolaus & Company, Inc. and Wells Fargo Advisors, LLC, among others, submitted AWCs to settle such alleged violations and agreed to pay restitution to affected customers in varying amounts (an estimated $15 million in restitution in the case of Wells Fargo). In concluding these settlements, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

The questions asked and requests of FINRA member firms in the sweep letter include, among others:

  • If the firm had retirement plan or charitable accounts during the relevant period, has the firm initiated a look-back assessment to determine whether there have been any missed sales charge waivers to eligible accounts, including a description of how the firm is calculating the missed discounts?
  • Provide a copy of any training materials given to supervisory personnel or sales staff specific to Class R shares during the relevant period.

The letter identifies the relevant period for each request as January 1, 2011 through December 31, 2015. Recipients of the letter are directed to respond with information and documents to FINRA staff on or before June 10, 2016.

The letter is available at: https://www.finra.org/industry/mutual-fund-waiver.