FINRA Provides Guidance on Sales Charge Discounts and Waivers

In a recent notice, FINRA discussed common sales charge discounts and waivers that mutual funds, 529 plans, non-traded REITs and non-traded BDCs may offer customers and the possible deficiencies in the execution of these discounts and waivers. Finra in recent years brought enforcement actions against firms that did not provide available sales charge discounts and waivers to customers that met certain thresholds and stated that it continues to find situations where firms fail to (1) identify and apply relevant sales charge discounts or waivers; and (2) establish, maintain, or enforce supervisory systems and written supervisory procedures reasonably designed to identify accounts that would be eligible for such discounts or waivers. FINRA’s enforcement program is separate from the SEC’s recently completed share class initiative although the FINRA program targets some of the same deficiencies. For instance, in examinations and enforcement actions, FINRA found that firms failed to establish or maintain systems, controls and written supervisory procedures reasonably designed to identify customers eligible to receive discounts or sales charge waivers for relevant products and that firms relied on their associated persons to identify and apply available sales charge discounts and waivers, but failed to provide adequate guidelines, instructions or policies for those associated persons and their supervisors. In addition, firms failed to adequately notify and train certain staff regarding the availability of volume discounts or sales charge waivers for eligible products and customers. FINRA listed several questions that can be asked of firms on whether they are addressing these potential deficiencies, including:

• Discounts/Fee Waiver Coverage – Do your firm’s written supervisory procedures address all sales charge discounts and waivers that customers may be eligible to receive for relevant products?
• Data and Analysis – How does your firm collect, maintain, and analyze data to identify and provide sales charge discounts or waivers that a customer may be eligible to receive? 
• Training for Associated Persons – What steps does your firm take to educate associated persons about waivers and discounts? 
• Training for Supervisors – Does your firm provide training or other guidance to supervisors on the steps they should take to identify and address missed sales charge discounts and waivers?