529 Plan Share Class Initiative: FINRA Encouraging Firms to Self-Report Violations

Action Alert

On January 28, 2019, the Financial Industry Regulatory Authority (FINRA) launched a program to allow broker-dealers to self-report share class disclosure violations related to 529 plans. The 529 Plan Share Class Initiative, as set out in Regulatory Notice 19-04, states that over the past several years, FINRA has found that some firms have failed to reasonably supervise brokers’ recommendations of multi-share class products.

529 Plans

529 plans are tax-advantaged municipal securities that are designed to encourage saving for the future educational expenses of a designated beneficiary. Because 529 plans are municipal securities, the sale of 529 plans are governed by the rules of the Municipal Securities Rulemaking Board (MSRB). See, MSRB Rule G-19 (Suitability of Recommendations and Transactions). FINRA is responsible for examining FINRA members that are municipal securities dealers or municipal advisors and for enforcing MSRB rules.

529 Plan Share Class Initiative Addresses Potential Areas of Concern

The 529 Plan Share Class Initiative seeks to promote compliance with rules governing 529 plan recommendations and encourages firms to investigate and self-report potential violation. The Notice has identified four areas of potential concern including:

failure to provide training regarding different 529 plan share classes;
failure to assess different costs for share class transactions;
failure to review data regarding the 529 plan share classes sold; and
failure to review potential discounts when conducting suitability analyses of 529 plan recommendations