FINRA Sweep Letter Regarding Mutual Fund Waivers

May 26, 2016

FINRA Sweep Letter Regarding Mutual Fun Both the 2015 and 2016 Financial Industry Regulatory Authority (“FINRA”) Examination Priorities Letters highlighted concerns regarding sales charge discounts and fee waivers. Many mutual funds waive their upfront sales charges for both retirement accounts and charities. However, FINRA has found that firms generally lack the automated controls necessary to flag mutual fund transactions for fee-waiver eligibility.

On May 18, 2016, FINRA issued a sweep letter that requests specific documents and information be provided to FINRA staff. Firms subject to the letter would need to deliver the information to FINRA on or before June 10, 2016. The request includes documents and information from the period of January 1, 2011 through December 31, 2015 (“relevant period”).

The specific information and documents requested in the FINRA sweep letter follow:

FINRA requests that, prior to providing a response to each question below, firms restate the relevant question in bold and italics.

  1. Did the Firm sell mutual funds to retirement plan or charitable accounts?
  2. Did the Firm have any agreements in place with mutual fund carriers that offer mutual fund sales charge waivers to eligible accounts, including retirement plan or charitable accounts?
  3. Does the Firm currently have a process and supervisory controls in place to ensure that mutual fund sales charge waivers are provided to eligible accounts, including retirement plan or charitable accounts?
    1. If yes, provide a written explanation of the process and supervisory controls, and identify the time period when the current process was deemed in effect.
    2. If no, please state so and the reason why a process is not necessary.
  4. If there were any changes to the firm’s process or supervisory controls as identified above, provide a written explanation of the change. Please indicate when the change in policy occurred and what events or actions led to the change. If there has been more than one change in process or supervisory controls, please list all. For each change in process, provide the relevant time period in effect, when the change occurred and the reason why the policy was changed.
  5. If the firm had retirement plan or charitable accounts during the relevant period, has the firm initiated a look back assessment to determine whether there have been any missed sales charge waivers to eligible accounts, including a description of how you are calculating the missed discounts and the date you expect to complete your review and reimburse eligible customers?
  6. During the relevant period, did the firm sell mutual funds that offered R shares to eligible customers?
  7. Does the Firm currently have a process and supervisory controls in place to ensure that R shares are offered to eligible accounts, when appropriate?
    1. If yes, provide a written explanation of the process and supervisory controls, and identify the time period when the current process was deemed in effect.
    2. If no, please state so and the reason why a process is not necessary
  8. Provide a copy of any training materials given to supervisory personnel or sales staff specific to R shares or mutual fund share classes, during the relevant period.

Addendum A to the referenced sweep letter provides specific instructions on how to submit the requested information. 

Please contact your ACA consultant or Dee Stafford in the Los Angeles office at (310) 322-8840 for more information regarding the implications of FINRA's Mutual Fund Waiver Sweep.