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Regulatory Sanctions

FINRA ‘Mutual Fund Waiver Sweep’ – Part 3

December 5, 2017

by Howard Haykin


Since April 2017, FINRA has reported disciplinary sanctions against 12 broker-dealers that sold mutual funds to retirement plan and charitable organization customers. While these institutional customers were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge, the broker-dealers instead sold classes of mutual fund shares that carried sales charges - i.e., front-end, back-end, and/or high 12b-1 fees. As a result, these “eligible customers” paid higher fees and expenses than they were actually required to pay.


While FINRA ordered each of the 12 broker-dealers to compensate impacted customers for actual estimated excess sales charges and 12b-1 fees – totaling nearly $11 million, plus pre-judgment interest – only 3 of the firms were hit with fines, totaling $195,000.


  • Investment Centers of America ($60,000);
  • National Planning Corp. Investment Centers of America ($60,000);
  • SII Investments ($75,000).


What did these 3 firms do to warrant fines in addition to the orders to pay restitutions and pre-judgment interest? Apparently, NOTHING!  


Fact is, FINRA praised these 3 firms, as well as the other 9 firms, in each respective AWC Letter with the following notation [bold emphasis provided by Financialish]:



 In resolving this matter, FINRA has recognized the extraordinary cooperation of [Firm Name] for having:

(1)  initiated, prior to detection or intervention at the Firm by a regulator, an investigation to identify whether Eligible Customers received sales charge waivers during the relevant period;

(2)  promptly established a plan of remediation for Eligible Customers who did not receive appropriate sales charge waivers;

(3)  promptly self-reported to FINRA;

(4)  promptly taken action and remedial steps to correct the violative conduct; and,

(5)  employed subsequent corrective measures, prior to detection or intervention at the Firm by a regulator, to revise its procedures to avoid recurrence of the misconduct.


FINANCIALISH TAKE AWAYS.    The only apparent mistake these 3 firms made was to be the first firms caught by FINRA with having “cheated” retirement plan and charitable organization customers on Mutual Fund Fee Waivers. In my opinion, these firms' cases should have been handled in a similar manner in which FINRA handled the latter 9 cases - even if means retroactive reversal of fines


Would you seek reimbursement from FINRA for if your firm had been unfairly sanctioned?


Shouldn't firms have the right to seek (partial) reversal of sanctions if, in the months following their AWC Letters, they learned that others were held to a different standard? believes the above 3 firms have rights and a valid argument. It's up to them to exercise those rights.