Morgan Stanley reimburses $ 1.7 million to 529 investors for high fees


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Morgan Stanley will reimburse $ 1.7 million to clients who paid high costs on investments intended for education expenses like tuition.
The brokerage firm pays the sum, including nearly $ 1.5 million in restitution plus interest, to about 2,300 clients who save money in 529 plans, the Financial Industry Regulatory Authority said on Wednesday.

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The savings is that these tax-advantaged accounts can be used to pay for a beneficiary’s K-12 tuition and other education-related expenses.

FINRA, a private self-regulatory organization in the financial industry, has cracked down on brokers who sell funds at excessive fees to those who save in 529 accounts, which can cost long-term investors thousands of dollars.

The watchdog launched a “share class initiative” last year asking companies to self-report high fees and reimburse customers who had been wronged. Those who voluntarily report a rule violation and reimburse aggrieved customers can escape a fine.

Morgan Stanley self-reported the error and neither admitted nor denied the wrongdoing.

“We are delighted to have resolved this issue,” said Susan Siering, spokesperson for the cabinet.

$ 1,500 in costs

FINRA said that between 2013 and 2018, Morgan Stanley failed to properly oversee the 529 brokers’ plan recommendations. Some clients have been placed in Class C investment funds, which often have 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 nearly two decades, according to FINRA.

“The aim of the 529 initiative is to remedy potential supervisory and proficiency violations related to the plan’s 529 share class recommendations, and to return money to aggrieved investors as quickly and efficiently as possible,” said Jessica Hopper, head of the regulator’s enforcement department.

Other large brokerage firms have also reimbursed clients high fees of $ 529 due to FINRA’s initiative. Merrill agreed to pay $ 4 million in restitution and Raymond James $ 8 million, FINRA announced last year.

B. Riley Wealth Management also agreed to repay $ 250,000 on Wednesday, according to FINRA. The company was not fined.

“The BRWM voluntarily self-reported its findings, immediately took corrective action and proposed a plan to effectively correct the small number of potentially affected accounts,” according to a company statement provided by spokesperson Jo Anne McCusker.


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