Gino Ercolino is a Director in Treliant’s Securities & Investment Management Compliance, Corporate & Regulatory Investigations, and Global Financial Crimes Compliance service areas. He has 25 years of experience as an attorney and financial regulator, serving in various leadership roles. Gino assists broker-dealers and registered investment advisors with satisfying their…
On March 6, 2019, FINRA extended the two key deadlines for firms seeking to take part in its 529 Plan Share Class Initiative. FINRA is now giving firms until April 30, 2019 to review their supervisory systems and procedures and self-report any potential violations or supervisory deficiencies related to share class suitability. FINRA has also extended the time by which firms must confirm their eligibility to take part in the initiative, giving firms until May 31, 2019 to submit detailed information as specified in Regulatory Notice 19-04 for the period of January 2013 through June 2018.
In conjunction with its extension, FINRA also published a list of 18 Frequently Asked Questions (FAQs) in response to the number of inquiries it received from firms and trade associations about the initiative. While indicating that the initiative is voluntary, FINRA also explained that firms choosing to participate will have the benefit of discussions with FINRA about their remediation efforts for supervisory failures and proposed plans for paying restitution to customers. FINRA further noted that it is possible for firms taking part in the initiative to receive an informal cautionary action from FINRA or even no action at all.
Although the scope of FINRA’s 529 Initiative is limited to broker-dealer sales into 529 plans, the overarching message of this and other share class initiatives remains clear – regulators will continue to focus on inappropriate sales practices that harm investors. In turn, firms need to be proactive in ensuring that their policies and procedures can identify, monitor, and address these risks. In order to do so, they should look to conduct a comprehensive review of their entire compliance, risk and supervisory organization and assess its ability of these functions to adequately meet the specific needs of both the business and its customers. For those that take advantage of the FINRA 529 Initiative, this includes a review of the suitability framework that governs sales into 529 plans – both at the time of sale, and as new circumstances arise, such as with the recent changes to eligible plan expenses. Further, firms that consider participating in the 529 Initiative will need to ensure that suitability frameworks address the specific needs of the plan beneficiary with respect to age, objectives, time horizon and other considerations.
Treliant is well-equipped to help your firm prepare for the FINRA 529 Plan Share Class Initiative. We have the expertise to provide guidance and assistance throughout the entire process – from a comprehensive review of your firm’s written supervisory policies and procedures, to the development of a detailed customer impact assessment and remediation plan. Our Wealth Management team includes professionals with deep consulting, industry and regulatory backgrounds and brings significant experience in helping industry participants across a wide-range of needs.
See FINRA FAQs to 529 Plan Share Class Initiative available at http://www.finra.org/industry/faq-frequently-asked-questions-regarding-529-plan-share-class-initiative