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Morgan Stanley will reimburse $ 1.7 million to customers who have paid high investment costs for education expenses, such as college tuition.
The brokerage is paying the amount, including nearly $ 1.5 million in restitution plus interest, to about 2,300 customers who are saving on 529 plans, the Financial Industry Regulatory Authority announced on Wednesday.
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The savings are those accounts with tax advantages that can be used to pay for college, elementary and high school tuition and other expenses related to the education of a beneficiary.
FINRA, a private self-regulatory organization for the financial sector, has been cracking down on brokers for selling funds at excessive rates to those who save on 529 accounts, which can cost investors thousands of dollars in the long run.
The watchdog launched a “stock class initiative” last year asking companies to report high fees and reimburse customers who have been harmed. Those who voluntarily report a rule violation and reimburse injured customers can escape the fine.
Morgan Stanley reported the error on his own and did not admit or deny any wrongdoing.
“We are pleased to have resolved this issue,” said Susan Siering, a spokeswoman for the company.
$ 1,500 in costs
FINRA said that between 2013 and 2018, Morgan Stanley did not adequately oversee brokers’ plan 529 recommendations. Some clients have been placed in Class C investment funds, which generally have 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 be worth $ 1,500 less than the same investment in class A shares after nearly two decades, according to FINRA.
“The purpose of the 529 initiative is to remedy possible oversight and compliance violations related to the 529 stock class recommendations and to return the money to the disadvantaged investors as quickly and efficiently as possible,” said Jessica Hopper, head of the oversight department at regulator.
Other major brokerage firms also paid clients high fees 529 due to FINRA’s initiative. Merrill agreed to pay $ 4 million in restitution and Raymond James, $ 8 million, FINRA announced last year.
B. Riley Wealth Management also agreed on Wednesday to refund $ 250,000, according to FINRA. The company was not fined.
“BRWM voluntarily reported its findings, immediately took corrective action and proposed a plan to efficiently remedy the small number of potentially affected accounts,” according to a company statement provided by spokeswoman Jo Anne McCusker.