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The Daily Brief
A FINRA sign outside the agency's office building.

New FINRA Initiative Focused on Sales of Expensive Share Classes in 529 Plans

The regulator wants broker/dealers to come forward and self-report supervisory failures in exchange for leniency.

The Financial Industry Regulatory Authority has launched a new initiative to discourage brokers from selling expensive share classes in 529 college savings plans. Under the initiative, FINRA won’t fine firms that self-report supervisory failures related to recommendations of 529 plan share classes. But firms would likely have to pay a settlement that included restitution for investors who were impacted.

"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," said Susan Schroeder, FINRA executive vice president of the Department of Enforcement.

The initiative is in the same vein as the Securities and Exchange Commission’s Share Class Selection Disclosure Initiative, where it will not recommend penalties against RIAs who self-report violations related to share class selection and return money to affected clients.

“FINRA is concerned that some firms may not provide supervision reasonably designed to ensure that representatives recommend a 529 plan share class that is tailored to the unique circumstances and needs of each customer,” the regulator said in a statement.

If a firm does not self-report under the initiative and later gets caught with violations in this area, FINRA will not grant any leniency.

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