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Morgan Stanley will repay $ 1.7 million to clients who paid high fees for investments set aside for educational expenses, such as tuition.
The brokerage firm will pay the amount, including nearly $ 1.5 million in refunds plus interest, to approximately 2,300 clients who save money in 529 plans, the Financial Industry Regulatory Authority announced Wednesday.
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Savings is that these tax-beneficial accounts can be used to pay for tuition, K-12 tuition, and other expenses related to a beneficiary’s education.
FINRA, a private self-regulatory organization for the financial sector, has cracked down on brokers who sell outrageous fee funds to those who save in 529 accounts, which could cost investors thousands of dollars in the long run.
The watchdog launched a “share class initiative” last year asking companies to self-report high fees and reimburse customers who suffered damages. Those who voluntarily report a rule violation and refund injured customers can escape a fine.
Morgan Stanley self-reported the error and neither admitted nor denied any violation.
“We are pleased to have resolved this issue,” said Susan Siering, a spokeswoman for the firm.
$ 1,500 in costs
FINRA said Morgan Stanley did not adequately monitor brokers’ 529 plan recommendations between 2013 and 2018. Some clients were placed in Class C mutual funds, which often carry higher annual fees and cost more in the long run than Class A funds, the regulator said.
A $ 10,000 investment in Class C stock would, according to FINRA, be worth $ 1,500 less after nearly two decades than the same investment in a Class A stock, according to FINRA.
“The purpose of the 529 initiative is to address potential regulatory and appropriateness violations related to 529 plan share class recommendations and to return money to disadvantaged investors as quickly and efficiently as possible,” said Jessica Hopper, head of enforcement. from the regulator.
Other major brokerage firms have also reimbursed clients for high 529 fees as a result of FINRA’s initiative. Merrill agreed to pay $ 4 million in refunds and Raymond James $ 8 million, FINRA announced last year.
B. Riley Wealth Management also agreed on Wednesday to repay $ 250,000, FINRA said. The company was not fined.
“BRWM voluntarily reported its findings, took immediate corrective action and proposed a plan to efficiently address the small number of potentially affected accounts,” said a corporate statement by spokeswoman Jo Anne McCusker.