FINRA launches new initiative for member firms to self-report 529 savings plan violations

FINRA has announced via Regulatory Notice 19-04 a self-reporting initiative to promptly compensate harmed investors and promote firms’ compliance with the rules governing the recommendation of 529 savings plans. Under the 529 Plan Share Class Initiative (529 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 response, FINRA’s Department of Enforcement will recommend that FINRA accept a settlement that includes restitution for the impact on affected customers and a censure, but no fine.

529 plans are tax-advantaged municipal securities 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. FINRA is concerned that some firms may not provide supervision reasonably designed to ensure that representatives recommend a 529 plan share class that is tailored to the unique circumstances and needs of each customer. Through the 529 Initiative, FINRA is encouraging firms to assess their supervisory systems and procedures governing 529 plan share-class recommendations, to identify and remediate any defects, and to compensate any investors harmed by supervisory failures.

In 2019, FINRA will continue to examine and investigate firms’ supervision of share-class recommendations to customers of 529 plans. If a firm does not self-report under the 529 Initiative but FINRA later identifies supervisory failures by that firm, any resulting disciplinary actions likely will result in the recommendation of sanctions beyond those described under the 529 Initiative.