Morgan Stanley repays $1.7 million to 529 plan buyers for prime charges

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Morgan Stanley will repay $ 1.7 million to customers who paid high costs for investments intended for education expenses such as tuition fees.

The brokerage firm is paying the amount, including a refund of nearly $ 1.5 million plus interest, to around 2,300 clients who are saving money in 529 plans, the financial industry regulator said Wednesday.

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Savings are that these tax-privileged accounts can be used to pay for tuition, K-12 tuition, and other expenses related to a beneficiary’s education.

FINRA, a private self-regulatory organization for the financial industry, has taken action against brokers to sell inflated funds to savers in 529 accounts, which can cost investors thousands of dollars in the long run.

The watchdog started a “Share Class Initiative” last year, in which companies were asked to report high fees themselves and to repay damaged customers. Anyone who voluntarily reports a rule violation and repays damaged customers can avoid a fine.

Morgan Stanley reported the bug itself and neither admitted nor denied wrongdoing.

“We are pleased to have resolved this issue,” said Susan Siering, a company spokeswoman.

Cost of $ 1,500

According to FINRA, Morgan Stanley did not adequately monitor brokers’ 529 plan recommendations between 2013 and 2018. Some clients have invested in Class C mutual funds, which often have higher annual fees and cost more over the long term than Class A funds, the regulator said.

A $ 10,000 investment in Class C Shares would be worth $ 1,500 less than the same investment in Class A Shares after nearly two decades, according to FINRA.

“The purpose of the 529 initiative is to resolve potential regulatory and suitability violations related to recommendations of the 529 Plan Share Class and to return money to harmed investors as quickly and efficiently as possible,” said Jessica Hopper, director of enforcement at the Regulatory authority.

Other large brokerage firms have also repaid clients for a hefty 529 fee as a result of FINRA’s initiative. Merrill agreed to pay $ 4 million in restitution, and Raymond James, $ 8 million, announced FINRA last year.

According to FINRA, B. Riley Wealth Management also agreed on Wednesday to repay $ 250,000. The company was not fined.

“BRWM has voluntarily self-reported its results, taken immediate corrective action and proposed a plan to efficiently address the small number of potentially affected accounts,” said a company statement from spokeswoman Jo Anne McCusker.

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