In its Disciplinary Actions for April 2017, FINRA reported the results of its sweep examination related to the sale of mutual fund shares carrying sales loads to certain types of customers that were eligible to purchase those shares without any type of sales charge. Three broker-dealers – each with a large network of branch offices - were singled out:

• Investment Centers of America
• National Planning Corporation Investment Centers of America
• SII Investments

The facts and circumstances of all three cases were similar, if not identical, and all three broker-dealers reached similar settlements.

BACKGROUNDS.    

►  Investment Centers of America.    ICA, a FINRA member since 1985, is based in Appleton, WI. The firm conducts a general securities business with more than 660 registered reps operating in around 590 branch offices. The firm has no relevant disciplinary history.

►  National Planning Corporation Investment Centers of America.    NPC, a FINRA member since 1992, is based in El Segundo, CA. The firm conducts a general securities business with more than 1,780 registered reps operating in around 860 branch offices. The firm has no relevant disciplinary history.

►  SII Investments, Inc.    SII, a FINRA member since 1968, is based in Appleton, WI. The firm conducts a general securities business with more than 860 registered reps operating in around 360 branch offices. The firm has no relevant disciplinary history.

FACTS AND VIOLATIVE ACTIONS ACCORDING TO FINRA.   

Over a 5-year period, from 2011 through 2015, certain retirement plan and charitable organization customers that were eligible to purchase Class A shares in certain mutual funds without a front-end sales charge were instead sold classes of mutual fund shares that carried sales charges – i.e., front-end, back-end, and/or 12b-1 sales charges. As a result, these “eligible customers” paid higher fees than they were actually required to pay.

According to FINRA, each firm had relied on its financial advisors to determine the applicability of sales charge waivers. However, such waivers were not applied for multiple reasons: (i) financial advisors were not adequately trained on sales charge waivers; and, (ii) the firm’s internal controls and supervisory procedures (‘WSPs”) were not adequately designed to detect the errors or to assist financial advisors in making the correct determination.

SETTLEMENT TERMS.   

In determining its sanction, FINRA took into account the fact that each firm:  (i) initiated an investigation to identify whether Eligible Customers received a sales charge waivers during the 5-year period; (ii) promptly established a plan of remediation for eligible customers who did not receive appropriate sales charge waivers; (iii) promptly self-reported to FINRA; (iv) promptly took action and remedial steps to correct the violative conduct; and (v) employed subsequent corrective measures to revise its procedures to avoid recurrence of the misconduct.

►  Investment Centers of America agreed to pay a $60K fine, and to provide remediation to eligible customers who, throughout the 5-year period, qualified for, but did not receive, the applicable mutual fund sales charge waivers. The overcharges were computed to be approximately $154,000.  [AWC #2015046688401]

►  National Planning Corporation Investment Centers of America agreed to pay a $60K fine, and to provide remediation to eligible customers who, throughout the examination period, qualified for, but did not receive, the applicable mutual fund sales charge waivers. The overcharges were computed to be approximately $521,000.  [AWC #2015046915901.

►  SII Investments, Inc.    SII agreed to pay a $75K fine, and to provide remediation to eligible customers who, throughout the examination period, qualified for, but did not receive, the applicable mutual fund sales charge waivers. The overcharges were computed to be approximately $966,000.   [AWC #2015046915601]

For details on any of the cases, go to … FINRA Disciplinary Actions Online, and refer to the particular AWC #.