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Morgan Stanley will reimburse $ 1.7 million to customers who have paid high costs for investments in education expenses, such as college tuition.
The brokerage firm is paying the amount, including nearly $ 1.5 million in refunds plus interest, to about 2,300 customers who save money on 529 plans, the Financial Industry Regulatory Authority announced on Wednesday.
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Savings are those accounts with tax advantages that can be used to pay for college, K-12 tuition and other expenses related to the beneficiary’s education.
FINRA, a private self-regulatory organization for the financial industry, has cracked down on brokers for selling excessive tax funds to those who save on 529 accounts, which can cost investors thousands of dollars in the long run.
The watchdog launched a “share class initiative” last year, asking companies to report high commissions on their own and reimburse customers who have been injured. Those who voluntarily report a breach of the rules and reimburse affected customers can get rid of a fine.
Morgan Stanley self-reported the error and neither acknowledged nor denied the wrongdoing.
“We are delighted that we 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 monitor the recommendations of the brokers’ 529 plans. Some clients have been placed in Class C investment funds, which often incur higher annual fees and cost more in the long run than Class A funds, the regulator said.
A $ 10,000 investment in Class C shares would be worth $ 1,500 less than the same investment in a Class A share after almost two decades, according to FINRA.
“The purpose of the 529 initiative is to remedy any breaches of oversight and adequacy related to the recommendations of the 529 plan’s share class and to return the money to affected investors as quickly and efficiently as possible,” said Jessica Hopper, head of the regulatory department.
Other large brokerage firms reimbursed clients for 529 high commissions due to the FINRA initiative. Merrill agreed to pay the $ 4 million refund, 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 company was not fined.
“BRWM voluntarily reported its findings, immediately took corrective action and proposed a plan to effectively address the small number of potentially affected accounts,” according to a company statement issued by spokeswoman Jo Anne McCusker.