News & Insights

Finra Extends Deadline For Broker Dealers To Self Report 529 Savings Plan Violations As Part Of New Initiative

FINRA recently announced a self-reporting initiative to promptly compensate harmed investors and promote firms’ compliance with the rules governing the recommendation of 529 savings plans.  529 plans are tax-advantaged plans that are designed to encourage saving for the future educational expenses of a designated beneficiary, and shares are commonly sold in different classes, with fees and expenses that vary widely from plan to plan.

Under the 529 Plan Share Class Initiative, broker dealers are encouraged to review their supervisory systems and procedures governing 529 plan share-class recommendations, self-report supervisory violations, and provide FINRA with a plan to remediate harmed customers.  In exchange, FINRA’s Department of Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on the affected customers and a censure, but no fine.  Though FINRA has always required that brokerage firms self-report violations, it has never before stated it will waive fines in exchange for cooperation and reimbursing investors.

The Initiative comes as result of FINRA’s concern that some firms may not provide supervision reasonably designed to ensure that representatives recommend a 529 plan share class that is tailored to unique circumstances and needs of each customer.  FINRA has stated that it will continue to examine and investigate firms’ supervision of share-class recommendations to customers of 529 plans and if a firm does not self-report under the Initiative, any resulting disciplinary actions likely will result in the recommendation of sanctions beyond those described under the 529 Initiative.

FINRA recently extended its deadlines for the Initiative, now giving broker dealers until April 30, 2019 to inform the enforcement division of its plans to participate, and until May 31, 2019 to submit the required information to remedy the matter.  We encourage all of our broker dealer clients who sell 529 plans to evaluate their supervision systems for share-class recommendations and determine to what extent self-reporting is necessary.