On July 6, 2015, each of Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC (together, “Wells Fargo”), Raymond James & Associates, Inc. and Raymond James Financial Services, Inc. (together, “Raymond James”) and LPL Financial LLC (“LPL”) entered into a Letter of Acceptance, Waiver and Consent with the Financial Industry Regulatory Authority (“FINRA”) to settle alleged rule violations in connection with each firm’s failure to apply mutual fund sales charge waivers for certain retirement plan and charitable organization customers (together, “Eligible Customers”).
As to each firm, FINRA alleged that, since at least July 1, 2009, the firms failed to reasonably supervise the application of sales charge waivers for eligible mutual fund sales to Eligible Customers. Although some of the funds available on each firm’s platform offered waivers of up-front sales charges associated with Class A shares for Eligible Customers and disclosed those waivers in their prospectuses, FINRA alleged that the firms treated the Eligible Customers in the same manner as ordinary retail customers and, as a result, the Eligible Customers either unnecessarily paid sales charges when purchasing Class A shares or purchased other share classes that subjected them to higher ongoing fees and expenses. In each case, the firm began a review to determine whether the firm had provided available sales charge waivers to Eligible Customers. Thereafter, each firm self-reported to FINRA that Eligible Customers had not received available sales charge waivers and thus were overcharged for mutual fund purchases during the relevant periods.
By failing to reasonably supervise mutual fund sales to ensure that Eligible Customers that purchased mutual fund shares received the benefit of applicable sales charge waivers, FINRA found that each firm violated NASD Conduct Rule 3010 (for misconduct before December 1, 2014) and FINRA Rule 2010 and, with respect to Raymond James and LPL only, FINRA Rule 3110 (for misconduct on or after December 1, 2014). As part of the settlements, each firm agreed to a censure and to pay restitution to Eligible Customers of the amount estimated to have been overcharged, including interest, totaling approximately $15 million in the case of Wells Fargo, $4.5 million for Raymond James and $6.3 million with respect to LPL. LPL also agreed to pay restitution to Eligible Customers that purchased fund shares or that purchase mutual funds without an appropriate sales charge waiver during the period January 1, 2015 through the date that the firm establishes and fully implements training, systems and procedures reasonably designed to achieve compliance with the supervision of mutual fund sales waivers.
In resolving the matters, FINRA cited each firm’s “extraordinary cooperation” for having: (i) initiated, prior to detection or intervention by a regulator, an investigation to identify whether Eligible Customers received sales charge waivers during the relevant period; (ii) promptly established a plan of remediation for Eligible Customers that did not receive appropriate sales charge waivers; (iii) promptly self-reported to FINRA; (iv) promptly taken action and remedial steps to correct the violative conduct; and (v) employed subsequent corrective measures, prior to detection or intervention by a regulator, to revise its procedures to avoid recurrence of the misconduct.
FINRA’s announcement of the enforcement settlements with each firm is available at: https://www.finra. org/newsroom/2015/finra-sanctions-wells-fargo-raymond-james-and-lpl-30-million.