
By Ralph Magee and Tim Buckler
Subscribe to our original industry insightsOn January 28th, 2019 the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 19-04, calling attention to FINRA concerns that firms may have failed to reasonably supervise share class selection in 529 plans. Specifically, customers may have purchased an “inappropriate” share class. FINRA encourages firms to review their controls and determine if any clients were negatively impacted by the firm’s sale of a share class that was not the least expensive alternative. Qualifying firms that participate by self-reporting to FINRA will only have to pay restitution to affected clients and will not be fined further. Firms that do not participate in the self-reporting initiative and are later found to have supervisory failures will likely be subject to additional sanctions.
Member firms should review their supervisory programs and procedures to determine if supervision was not reasonable and are encouraged to pay attention to the following:
The notice also reminds member firms of an IRS Code, effective January 2018, which expanded the potential use of 529 assets to include tuition for grades K-12. Subject to certain limitations, up to $10,000 per year can be withdrawn from a 529 plan tax-free when used for elementary or secondary educational expenses. Firms must consider these facts when reviewing their procedures as well as the time horizon of the invested assets as it pertains to the share class selection. Qualifying schooling expenses may be incurred when the beneficiary is as young as four or five years old.
"*" indicates required fields
Download the Capital Markets Services eBook to learn about CAT Reporting, Trade and Position Reporting, Market Access and Best Execution.
Download