The Financial Industry Regulatory Authority (FINRA) launched a self-reporting initiative to compensate harmed investors and promote compliance among companies with the rules related to 529 savings plans.
With this 529 Initiative, brokerage firms are encouraged to review their supervisory systems and procedures governing 529 plan share-class recommendations and self-report supervisory violations. They must also provide FINRA with a plan to remediate harmed customers. FINRA will accept a settlement that includes restitution for the impact on affected customers and a censure, but no fine.
529 plans are designed to encourage investors to save saving for college and other educational expenses. Shares are typically sold in different classes with fees and expenses that vary widely from plan to plan. FINRA is concerned that some firms don’t offer enough supervision to ensure that representatives recommend a 529 plan share class that is tailored to the 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,” FINRA Executive Vice President, Department of Enforcement, Susan Schroeder, 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.”
If a brokerage firm does not self-report under this initiative, FINRA will likely recommend sanctions beyond those described under the 529 Initiative.
FINRA, which is overseen by the Securities and Exchange Commission, regulates brokerage firms in the United States.