A large broker-dealer agreed to refund $89 Million to investors and pay an additional $8 Million fine for failing to waive sales charges and failing to offer the lowest mutual fund share class available.  According to FINRA, the firm’s failures affected 41,000 small business retirement plan accounts and 6,800 charities.  FINRA alleges that the firm knew about the overcharging as early as 2006 but failed to adopt and implement policies and procedures to ensure the financial advisers waived the sales charges or offered lower cost share classes.  Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said that “investors must be able to trust that their brokerage firm will offer the lowest-cost share classes available to them.”

OUR TAKE: The SEC and FINRA have recently stepped up their warnings that brokers and wrap sponsors must offer the least expensive mutual fund share class for each investor.  Compliance should ensure that the firm has adopted and implemented effective policies and procedures that will withstand regulatory scrutiny.