Hilliard Lyons agreed to pay back nearly $1 million to its clients for failing to waive sales fees on mutual funds for eligible institutional clients, according to FINRA.
In the latest settlement between a brokerage and the regulator over failures to waive such fees, Hilliard Lyons, after an internal investigation, determined that its advisers had been selling retirement plans and charitable organizations mutual fund shares that carried front- or back-end sales charges or recurring expenses and fees.
Those clients, Hilliard concluded, should have received waivers of the sales charges associated with Class A shares of the mutual funds, but were instead sold Class A shares that carried the fees or Class B or C shares with back-end and higher ongoing expenses.
In December 2015, Hilliard approached FINRA with its findings, admitting to the regulator that, over a six-year period, its advisers overcharged an estimated 1,060 clients around $716,000 in sales charges that should have been waived. The firm has accepted a censure from FINRA, committed to improve its supervisory procedures and adopted a written plan to identify clients that were overcharged and pay out more than $812,000 in restitution, accounting for the overcharges and interest.
With the settlement, Hilliard Lyons joins the ranks of brokerage houses that FINRA has hit for failing to waiver fees on Class A mutual fund shares. That list includes Baird, Merrill Lynch, Edward Jones and others.
Last July, in announcing a settlement with Wells Fargo, Raymond James and LPL Financial, a senior FINRA official cited the industry regulator's "commitment to ensure that mutual fund investors get the full benefit of available fee and expense reductions."
Hilliard Lyons spokesman Garrison Cox says that the firm initiated its internal review following the findings of overcharges and share misclassifications at other firms, including Merrill Lynch, which was hit with an $8 million fine and ordered to repay more than $24 million to charity and retirement clients in 2014.
Cox also provided an emailed statement on the matter, saying, in part, that "[i]t is Hilliard Lyons' heritage and policy to care faithfully for our clients' needs. In this situation, we discovered an error that had been made in some cases by our financial consultants. When we discovered the issue, we thoroughly investigated and self-reported the situation to FINRA."
Cox says that Hilliard plans to reimburse all clients affected by the share class overcharges by Oct. 1.
In its own review of the matter, FINRA determined that Hilliard Lyons violated its supervision rule, as well as the catch-all provision of rule 2010, which holds that brokers "shall observe high standards of commercial honor and just and equitable principles of trade."
In addition to failing to adequately oversee its advisers, Hilliard did not have in place sufficient written policies and procedures governing fees and share-class selection for mutual funds, FINRA concluded.
However, the regulator credited Hilliard for its "extraordinary cooperation" in the matter, citing the internal review the firm undertook on its own initiative and lauding it for establishing a remediation plan and bringing the issue to FINRA's attention.
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