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