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NASD announced today that it has fined Chase Investment Services Corporation of Chicago and MetLife Securities, Inc. of New York $500,000 each for failing to establish systems and procedures to supervise the sales of 529 College Savings Plans.
NASD also ordered the firms to compensate customers disadvantaged by those supervisory failures. Chase will pay approximately $288,500 into about 300 customer accounts, while MetLife will pay approximately $376,000 into a similar number of accounts.
"Firms must take steps to ensure that investors are aware of the critical features of the many different 529 Plans that are being offered today, so investors are better able to choose a plan that's right for them," said James S. Shorris, NASD Executive Vice President and Head of Enforcement. "Brokers must consider all relevant factors - including possible state tax benefits, investment choices and expenses, and more in determining whether a 529 Plan is a suitable investment for a particular customer. And brokers must disclose those relevant factors to the customer."
NASD found that during the relevant time periods - from January 2002 through August 2004 for Chase, from January 2002 until March 2005 for MetLife - neither firm had specific procedures governing the sale of 529 Plans, including procedures governing suitability requirements. During these time periods, Chase's 529 Plan sales exceeded $134 million, while MetLife's were over $150 million. The firms made these sales without providing specific criteria or guidance for their registered representatives to use when recommending 529 Plan purchases. Moreover, both firms failed to establish criteria for supervisors to use when reviewing 529 Plans recommended by their registered representatives and failed to establish effective procedures concerning documenting the suitability of determinations that were made.
529 College Savings Plans are tax-advantaged investments designed to help families pay for qualified higher education costs. The plans offer families the opportunity to obtain growth and distribution of earnings that are free from federal taxes. Forty-nine states (all but Wyoming) and the District of Columbia each offers at least one 529 plan, and more than 80 plans are available in all. Federal tax advantages apply to all 529 college savings plans, while 26 states and the District of Columbia currently offer varying tax incentives as well -- meaning that state tax treatment can be an important consideration for investors in deciding which plan to select. 529 Plans are governed by rules established by the Municipal Securities Rulemaking Board, whose rules are enforced by NASD.
In settling with NASD, Chase and MetLife neither admitted nor denied the findings, but consented to the entry of NASD's findings.
Today's enforcement actions are the second and third cases to result from NASD's fact-finding sweep examining sales of the popular college savings plans. In October 2005, NASD fined Ameriprise Financial Services $500,000 and ordered it to pay approximately $750,000 to customers.
To help investors learn about the risks and rewards of 529 Plan investing, NASD offers several valuable online tools - an Investor Alert, "a href="http://www.nasd.com/InvestorInformation/InvestorAlerts/529Plans/CollegeSavingsPlans--SchoolYourselfBeforeYouInvest/NASDW_010756">College Savings Plans - School Yourself Before You Invest, as well as a comprehensive online learning center, Smart Saving For College, which includes a 529 Plan Expense Analyzer to help investors calculate and compare the fees and expenses for competing 529 Plans.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2006 National Association of Securities Dealers, Inc.")
