FSC Securities Corporation, a brokerage firm headquartered in Atlanta, Georgia, has been censured and fined $100,000.00 by Financial Industry Regulatory Authority (FINRA) by consenting to findings that it failed to apply mutual fund sales charge waivers for its customers that were eligible to receive them. Letter of Acceptance, Waiver and Consent, No. 2017054137901 (Dec. 20, 2017).

According to the AWC, the firm sold mutual funds containing different share classes in the same securities portfolio, where each share class contained differences as to the amount and structure of sales charges as well as the ongoing asset-based fees. The AWC stated that investors’ returns in the same mutual fund differed because of the difference in fees, charges, breakpoints, and waivers pertaining to each share class.

FINRA stated that investors who qualified for class A share class waivers would have no purpose to invest in other share classes, and charitable organizations and retirement plans often received waivers on the front-end sales charges on class A shares. The firm reportedly failed to apply those waivers even though they were available to customers. Instead, the firm evidently sold the class A shares with a front-end sales charge, or sold class B or C shares containing either back-end charges or additional expenses and fees.

The AWC revealed that the firm did not adequately supervise sales charge waiver applicability, depending instead on its financial advisors to make determinations as to applicability. The AWC stated that the firm failed to set forth reasonable procedures and policies to guide the advisors in making waiver determinations, and failed to create and implement procedures to uncover available waivers listed in the funds’ prospectuses.

Moreover, the firm failed to provide advisors with notification and training concerning waivers of mutual fund sales charges, and did not undertake measures to identify when waivers were not applied. FINRA concluded that the firm’s supervisory failures were violative FINRA Rules 2010 and 3110, as well as NASD Conduct Rule 3010.

The AWC revealed that from January 1, 2011 to September 30, 2017, two-hundred and twenty-one accounts contained mutual fund share purchases where waivers had not been processed for customers when the customers were eligible. Consequently, customers reportedly overpaid by $380,520.00.

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