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- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
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NEWSLETTERS & ALERTS
Merrill Lynch, Raymond James Overcharged ‘College Plan’ Investors
by Howard Haykin
529 Plans are a great way for parents and grandparents to save for a child’s college or private school expense. And they’re readily available for sale through most brokerage firms - including Merrill Lynch ("ML") and Raymond James ("RJA" and "RJAFS"). Yet, as we recently learned, there can be a downside to the sale of these wonderful products.
According to the industry regulator, Financial Industry Regulatory Authority (or FINRA), the retail units of Merrill Lynch and Raymond James Financial overcharged their customers on purchases of 529 Plan shares by approximately $12 million.
- ML customers overpaid $4 million for 529 Plan purchases from 2011 to 2015.
- RJA and RJFS customers overpaid $8 million for 529 Plan purchases from 2008 to 2017.
- The firms agreed to fully reimburse their customers for these errors.
The overcharges occurred because the brokers at both firms failed to fully consider significant factors, like: (i) the ages of beneficiaries, (ii) the number of years until expected withdrawals, and (iii) the various shares classes (that carry different fees and expenses). The unsuitable recommendations caused customers to incur higher fees year-after-year, especially in the case of young beneficiaries.
CAVEAT EMPTOR - "LET THE BUYER BEWARE." While it’s comforting to know that many firms are on the lookout for intentional and unintentional errors, it's disconcerting to see that errors can continue to be committed over extended periods - oftentimes by the largest and best-staffed brokerage firms. Which illustrates the critical need for investors to understand, as best they can, what investments they’re being sold and how much they’re paying for these securities - while recognizing that certain errors can recur throughout the term an investment (for 529 Plans, that might mean upwards of 20 or so years).
[For further details on these cases, click on FINRA November 6th News Release.]