Targeted Examination Letter on Mutual Fund Waivers

May 2016

In connection with the Mutual Fund Waiver Sweep, FINRA requests that the Firm provide the following documents and information to FINRA staff on or before June 10, 2016 regarding the above referenced Sweep.   

Unless otherwise noted, the relevant period for each request is January 1, 2011 through December 31, 2015 (the “relevant period”). In addition, if your response is different for varying times during the relevant period, please explain the differences in your response.

Prior to your response to each question, please restate the relevant FINRA 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.

Please find the attached addendum, which addresses the information requested in this letter. This inquiry should not be construed as an indication that FINRA or its staff has determined that any violations of federal securities laws or FINRA, NASD, NYSE, or MSRB rules have occurred.  

ADDENDUM A - REQUEST FOR INFORMATION

Electronic communications must be produced in their entirety in their native, electronic format including attachments, Internet headers, and/or other metadata, on CD-ROM, DVD, or other electronic storage media. Facsimile reproductions such as TIFF, JPG, or other image files, PDF files, or productions that require proprietary software or viewers, including Concordance or Summation, are not acceptable. Please provide a separate file or series of files for each individual (custodian) and/or system produced and include an index clearly indicating the custodian, all e-mail accounts or aliases used or potentially used by the custodian, and the system and/or application from which the electronic communications are being produced. Do not produce paper copies unless there is no electronic source for the electronic communications. Retain all backups or archives of electronic communications for the Relevant Period, even after all responsive electronic communications have been produced.

In responding to this request please note the following:

  • As used in this request, the term “document” means writings, drawings, graphs, charts, spreadsheets, photographs, microfilm, microfiche and any other data compilation or communication from which information can be obtained. “Document” specifically includes, without limitation, communications memorialized or stored in any storage medium, including mechanical or electronic form such as e-mail and voicemail messages. “Document” also includes drafts and any non-identical copies. If any document responsive to this request consists of electronic data, please produce it on CD-ROM, DVD, or other electronic storage media in the native, electronic format as created and stored in the ordinary course of business. Facsimile reproductions such as TIFF, JPG, or other image files, PDF files, or productions that require proprietary software or viewers, including Concordance or Summation, are not acceptable unless that is how the records are kept in the ordinary course of business. See below for information concerning encryption requirements. If it is not feasible for the Firm to do so, please call me or, in my absence, Pam Arnold at (561) 443-8056, to discuss alternative arrangements.
  • If the Firm is providing the information in response to this request electronically on a portable media device (PMD), including but not limited to, hard drives, CD-ROMs, DVDs or other discs/diskettes, the PMD (or the files stored on the PMD) must be encrypted as required by Rule 8210(g) (see Regulatory Notice 10-59). The access password must be provided in a separate communication to me.
  • If the document production contains Bank Secrecy Act materials, please provide those materials in a separate production and under a separate cover letter indicating that the production includes confidential BSA information. All portable media devices must be encrypted and labeled “Confidential BSA Material.”
  • As a matter of policy, FINRA conducts its investigations on a non-public basis. Nonetheless FINRA may sometimes provide access to its investigative files to other regulatory and law enforcement authorities, and, if subpoenaed, to litigants in civil actions. In addition, pursuant to FINRA’s Code of Procedure, FINRA is required to produce documents and transcripts to respondents during discovery. We will not (1) entertain requests for confidential treatment of any information or documents the Firm provides in response to this request; (2) give the Firm notice of any subpoena or access request we receive that encompasses any such information or documents; or (3) undertake to return documents when this investigation is completed.