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Morgan Stanley will repay $ 1.7 million to customers who paid high costs for investments earmarked for education expenses such as university tuition.
The brokerage firm is paying the amount, including nearly $ 1.5 million in restitution plus interest, to about 2,300 customers saving money in 529 plans, the Financial Industry Regulatory Authority announced Wednesday.
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Savings are that these tax-benefit bills can be used to pay for university, K-12 tuition and other expenses related to the training of a beneficiary.
FINRA, a private self-regulatory organization for the financial industry, has slammed brokers for selling funds with exorbitant fees to those saving in 529 accounts, which could cost investors thousands of dollars in the long run.
The watchdog launched a ‘share class initiative’ last year to ask companies to report high fees themselves and repay customers who have been harmed. Those who voluntarily report a breach of a rule and reimburse disadvantaged customers may escape a fine.
Morgan Stanley reported the error itself and did not admit or deny it.
“We are delighted that we have resolved this matter,” said Susan Siering, a spokeswoman for the firm.
Cost of $ 1,500
FINRA said that between 2013 and 2018, Morgan Stanley did not adequately oversee brokers’ recommendations on the 529 brokerage plan. Some clients are placed in Class C investment funds, which regularly carry higher annual fees and cost more in the long run than Class A funds, the regulator said.
An investment of $ 10,000 in Class C shares would, according to FINRA, be $ 1,500 less than the same investment in a Class A share.
“The purpose of the 529 initiative is to redress possible breaches of supervision and suitability in relation to the recommendations of the 529 share class, and to harm money to investors as quickly and efficiently as possible,” said Jessica Hopper, head of the appropriate division of the regulator, said.
Other large brokerage firms also repaid clients for high 529 fees due to FINRA’s initiative. Merrill agreed to pay $ 4 million in restitution, and Raymond James, $ 8 million, announced FINRA last year.
B. Riley Wealth Management also agreed on Wednesday to repay $ 250,000, according to FINRA. The firm was not fined.
“BRWM voluntarily reported its findings itself, took immediate corrective action and proposed a plan to effectively recover the small number of accounts that could be affected,” according to a company statement by Jo Anne McCusker.