Supervision of 529 Savings Plans has become a major focus of FINRA. FINRA has launched a 529 Plan Share Class initiative intended to motivate compliance of 529 Plan rules. FINRA recommends that firms perform a review of their 529 Savings Plans to ensure appropriate mutual fund share classes were recommended and sold to clients based on their suitability and account investment objectives. How far back should you go for your firm’s review? Your firms review period should consist of a least the time-period of January 2013 through June 2018. This is the self-reporting “disclosure period” that FINRA specified for any firms that find violations arising from suitability violations. If you find any accounts with suitability violations, the firm should promptly align investments to match the client’s suitability and investment objectives, and investors harmed by the unsuitable recommendations should immediately have money returned to them.
Additionally, the firm should review their compliance procedures design, implementation and execution regarding 529 Plan Share Class recommendations and update the procedures where appropriate.
FINRA is encouraging firms to self-report any violations of their supervisory systems and procedures governing 529 plan share-class recommendations. For a firm o be eligible for the 529 Plan Share Class Initiative, a firm must send FINRA written notification by 12:00 a.m. E.T on April 1, 2019. By May 3, 2019, the firm must confirm it eligibility by submitting the requested documentation listed in FINRA’s Regulatory Notice 19-04.
In FINRA’s Regulatory Notice 19-04, FINRA has outlined potential self-reporting benefits. They also stress that the decision to not self-report will likely result in more severe sanctions.
Click here for more detail on FINRA’s 529 Plan Share Class Disclosure.
Written by: Scotty Franks, Senior Compliance Consultant, Red Oak
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.