August 24, 2017

August 23, 2017

Subscribe to Latest Legal News and Analysis

August 22, 2017

Subscribe to Latest Legal News and Analysis

August 21, 2017

Subscribe to Latest Legal News and Analysis

FINRA Sanctions Cetera for Violations in Connection with Mutual Fund Sales

On May 3, 2017, FINRA accepted a Letter of Acceptance, Waiver and Consent (the AWC) submitted by Cetera Advisor Networks LLC (Cetera) for the purpose of settling certain alleged violations in connection with mutual fund sales.

According to the AWC, between July 1, 2009 and January 1, 2017, Cetera disadvantaged certain retirement plan and charitable organization customers that were eligible to purchase Class A shares of certain mutual funds without paying a front-end sales charge by instead selling them either Class A shares with a front-end sales charge or Class B or Class C shares with back-end sales charges and higher ongoing asset-based fees and expenses than Class A shares.  The AWC states that, although waivers of Class A front-end sales charges on certain mutual funds on Cetera’s platform were disclosed in the funds’ prospectuses, Cetera failed to apply the waivers, causing the eligible customers to pay higher fees and expenses than they were required to pay.  

FINRA alleged that, during the relevant period, Cetera failed to establish and maintain a supervisory system and procedures reasonably designed to ensure that customers eligible for sales charge waivers on mutual fund purchases received the benefit of such waivers.  According to the AWC, Cetera relied on its financial advisers to determine the availability of sales charge waivers but failed to maintain adequate policies and procedures to help the advisers make such determinations (including, e.g., identifying applicable sales charge waivers in mutual fund prospectuses).  FINRA also alleged that Cetera failed to adequately notify and train its advisers on the availability of waivers and failed to adopt adequate controls to identify when eligible customers did not receive the benefit of applicable sales charge waivers in connection with mutual fund purchases.  As a result of this conduct, FINRA alleged that Cetera violated NASD Conduct Rule 3100 (for conduct prior to December 1, 2014), FINRA Rule 3110 (for conduct on and after December 1, 2014) and FINRA Rule 2010.

According to the AWC, Cetera conducted an internal investigation on mutual fund sales practices and self-reported to FINRA that certain customers may not have received the benefit of sales charge waivers for which they were eligible.  The AWC stated that FINRA recognized the “extraordinary cooperation” of Cetera in conducting the internal investigation, establishing a plan of remediation, self-reporting the matter to FINRA, taking steps to correct the violative conduct and revising its internal procedures to avoid a recurrence.  

Cetera neither admitted nor denied the allegations but consented to the entry of FINRA’s findings and the imposition of sanctions, including, among other things, a censure and the payment of restitution (including interest) of approximately $1.9 million.

© 2017 Vedder Price

TRENDING LEGAL ANALYSIS


About this Author

Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...

+1 (312) 609 7589