FINRA 529 Plan Share Class Initiative encourages firms to self-report violations

Abstract

Purpose To explain FINRA’s new 529 Plan Share Class Initiative, which encourages broker-dealers to self-report violations. Design/methodology/approach This article provides an overview of 529 plans, the various fee structures of the underlying investment funds, and guidance that broker-dealers should tailor their recommendations to the needs of the individual customer. The article discusses FINRA’s initiative for broker-dealers to self-report if they have violations in this area. It describes various supervisory failures brokerage firms may experience in connection with recommending 529 plans, eligibility for the self-reporting initiative and benefits of self-reporting. Findings This FINRA initiative provides an opportunity for firms to reflect on their supervisory systems and provide restitution to harmed customers. It also provides relevant fee-based investment information to customers. Practical implications 529 plans are valuable tax-advantaged tools to encourage saving for the future educational expenses of a designated beneficiary. If brokerage firms lack reasonable supervisory procedures to recommend appropriate investments based on the length of the investment horizon, this FINRA initiative provides a unique and limited opportunity for 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, while possibly avoiding fines for such conduct. Originality/value Expert guidance from experienced financial services regulatory and public finance lawyers.