The Financial Industry Regulatory Authority (FINRA) has been focused on investment firms that are not reimbursing their customers for mutual fund sales charge waivers and fee rebates. In December FINRA ordered three firms to pay their customers more than $8.2 million in restitution for not providing those waivers and rebates to customers.
The three firms were Edward Jones, Osaic Wealth (and its affiliated broker-dealers) and Cambridge Investment Research, Inc. Edward Jones was ordered to repay customers to the tune of $4.4 million; Osaid reimbursed customers $3 million; and Cambridge Investment Research was ordered to repay $669 thousand in excess sales charges and fees.1 Customers were also to be reimbursed interest.
Many mutual funds provide what is known as a “right of reinstatement” or RoR. This right allows a customer who has sold shares in a fund or fund family to reinvest in those shares without having to pay front-end sales charges. They may also recoup all or part of a contingent deferred sales charge.
Firms selling mutual funds are required by FINRA to have a supervisory system designed to reasonably detect and monitor whether customers’ “right of reinstatement” was honored, providing those customers with the reimbursement for which they were entitled.
Each of the three firms cooperated in the FINRA investigations so none were given fines. By agreeing to reimburse their affected customers, each of the three firms neither admitted nor denied the charges.
FINRA started their targeted examination of mutual fund fee waivers in 2020. In November of that year they sent a letter to firms telling them that they were “conducting a review of systems and procedures for providing customers waivers and rebates available through Rights of Reinstatement on mutual fund purchases.”2 To date, the agency has secured over $9.5 million in restitution for affected customers across five firms.
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1, FINRA Orders Three Firms to Pay Over $8.2 Million in Restitution to Customers, 12/20/2024
Link: https://www.finra.org/media-center/newsreleases/2024/finra-orders-three-firms-pay-over-82-million-restitution-customers
2, Targeted Examination Letter on Rights of Reinstatement (RoR), 11/2020
Link: https://www.finra.org/rules-guidance/guidance/targeted-examination-letters/rights-of-reinstatement