The Financial Industry Regulatory Authority (FINRA) introduced an initiative that would allow financial firms to self-report 529 plan violations and provide FINRA with a plan to remediate harmed customers.
Through this initiative, FINRA is encouraging firms to assess their supervisory systems and procedures governing 529 plans to identify and remediate any defects and to compensate any investors harmed by supervisory failures.
The 529 plans are tax-advantaged municipal securities that are designed to encourage saving for the future college expenses. Shares are commonly sold in different classes with fees and expenses that vary widely from plan to plan. FINRA is concerned that some firms may not adequately supervise these plans to ensure that representatives recommend a 529 plan share class that is tailored to the unique needs of each customer.
“By focusing on restitution and rapid remediation through the 529 Initiative, FINRA is working with firms that demonstrate a commitment to fixing potential problems and making customers whole promptly,” Susan Schroeder, executive vice president, Department of Enforcement at FINRA, said. “FINRA’s highest priority in an enforcement action is to first seek restitution to any harmed investors. We also seek to ensure that systemic deficiencies are remediated. In this initiative, we are sharing our concerns and observations about sales of 529 plans to achieve these goals as quickly and effectively as possible.”
FINRA’s Department of Enforcement said it would accept a settlement that includes restitution for the impact on affected customers and censure, but no fine.
If a firm does not self-report under the 529 Initiative, but FINRA later identifies supervisory failures by that firm, further disciplinary actions beyond those described under the 529 initiative will likely result.