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A Few Minutes With FINRA: 529 Plan Share Class Initiative - YouTube
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鈾櫔
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-Hello. I'm Chip Jones,
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and welcome to
"A Few Minutes with FINRA,"
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where we will focus on the
529 plan share class initiative.
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Joining me today is FINRA's head
of Enforcement, Susan Schroeder.
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Susan, welcome.
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-Thank you, Chip.
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-Given that this is
the first time
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that FINRA has offered this type
of self-reporting program,
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I thought it would be helpful
to ask Susan
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to provide us with some
background on this initiative.
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So, Susan,
let's start with exactly
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what is the 529 plan share class
initiative?
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-So, through this initiative,
FINRA is encouraging firms
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to take a look
at the way they supervise
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their sales of 529 plans
and in particular,
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the suitability
of their recommendations
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of share classes in 529 plans.
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Firms that take a look
at their supervision
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and find a deficiency
are invited to self-report to us
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and work with us
on developing a plan
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to make restitution
to impacted customers,
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and in return,
we'll recommend a settlement
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that includes restitution
to customers but no fine.
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-So, why is FINRA concerned
about 529 plan violations?
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-Well, 529 plans are incredibly
important investment vehicles
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for a lot of Americans
who are trying to save
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for the education
of beneficiaries
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like their children,
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and FINRA has learned
through the course
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of reviewing some firms'
529 plan sales
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that this can be
a blind spot for some firms.
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We've identified
a few different kinds
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of supervisory issues at firms,
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and given the importance
of the vehicle, as I said,
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and the importance
of getting money back
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to impacted customers,
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if they've been impacted
by issues at their firms,
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we think it makes sense
to tell firms what we're seeing
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and what we're concerned about
and ask firms to be proactive
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about making sure
they've got everything right.
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-So, FINRA's asking firms
to assess the potential impact
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of its supervisory deficiencies.
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What are the different ways
that firms can do that?
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-There are a lot of ways
firms can do that.
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So, let's say a firm identifies,
"You know what?
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We do have an issue
with our supervision.
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For example, maybe we haven't
been getting the data
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that we need to assess
what share class
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has been recommended
to these customers."
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The next step would be to see
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what customers
have been impacted.
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One way to do that is to look,
customer by customer, at whether
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or not the recommendation
that was made was suitable.
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There are other ways to do that
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that might be
more time-efficient,
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such as a statistical analysis
of, let's say,
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investors who purchase
529 plans for college,
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and the beneficiary
is younger than 12.
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Under those circumstances,
an A share will typically be
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a more cost-effective option
than a C share.
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So you could look to see,
for beneficiaries under 12,
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were they being recommended
C shares.
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That might be an issue.
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-So, are we saying that C shares
are never suitable
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or are always unsuitable
for younger beneficiaries?
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-Absolutely not.
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We're not saying that there is
any, per se,
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unsuitability about C shares.
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In fact, with the recent
revisions to the tax laws,
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it's even more complicated,
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because you can use 529 plans
under some circumstances
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for educational expenses
before college.
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Really underscores
the need to understand
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each investor's particular
circumstances and objectives
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and make sure that
the recommendation is suitable
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for that investor.
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-So, this is the first time that
we've done something like this,
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requested self-reporting
of violations
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in exchange for a recommendation
of settlement terms
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that include restitution
and a plan
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to fix the issue but no fine.
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-Mm-hmm, it is.
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You know, we have certainly
settled cases in the past
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where we've ordered restitution
and no fine,
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based on firms' extraordinary
cooperation with us,
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and that can include
things like self-reporting,
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making quick restitution
to customers,
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quickly remediating the problem.
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Here, what we're doing, I think,
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is really consistent with
our goals as part of FINRA 360,
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to help firms comply
with their obligations.
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It's also consistent with
our goal of getting restitution
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back to investors
as quickly as possible.
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-If firms self-report
via this initiative,
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could they be subject
to statutory disqualification?
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-No.
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A settlement
under this initiative
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would be
a supervisory settlement
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and would not trigger an SD.
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-You mentioned earlier
credit for cooperation.
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Should firms see this
as expanded guidance
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on credit for cooperation that,
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if they self-report
any violations,
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it will be met
with lesser sanctions?
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-Well, no.
I mean, self-reports,
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first of all, rule 4530,
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requires firms to self-report
certain violations.
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This doesn't change that.
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But if you look at some of
our past practices
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and at our sanction guidelines,
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you'll see that a firm's
cooperation with FINRA
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through self-reporting,
providing full information,
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working with us on remediation
and restitution,
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those are factors that
we consider in all of our cases.
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-Does having
the 529 plan initiative mean
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that we are not going to examine
for violations
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related to 529 plan share
class recommendations
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through our examination program?
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-It does not.
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The exam program will continue
to look at 529 plans
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and share class recommendations.
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So, if FINRA identifies that
a firm has a supervisory issue
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that the firm
didn't self-report,
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the firm chose not to
participate in this initiative,
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if that supervisory violation
develops into a formal action,
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Enforcement would recommend
a sanction greater
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than the sanctions
that we're recommending
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under the initiative.
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-Okay.
And then, my next question is,
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what firms
should consider participating
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in this initiative?
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-Firms that sell 529 plans,
I think,
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should consider participating.
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This is, again, an opportunity
to take a step back and review
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how you're supervising
the sales of this product
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based on the information
we're trying to provide
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about where we've seen
blind spots in the industry.
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It's a time to say,
"How are we training about 529s?
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Do our registered reps
understand 529s?
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Do we have the right information
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to be able to supervise
for these recommendations?"
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So, any firm that I think
is participating in this market,
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selling 529s,
I encourage them to think
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about taking advantage
of this opportunity.
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-So, I'm a broker-dealer firm,
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and I decide that I do want to
participate in this initiative.
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How do I go about doing that?
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-Well, there's plenty of detail
in the reg notice.
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There's a self-report
that will be due on April 1st.
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Some follow-up information
that we would be looking for
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and the reg notice actually
lists the contacts at FINRA
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who can answer questions.
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One important thing it also says
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is that we understand data
can be difficult to get,
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calculations can be
difficult to do.
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Some of what we're asking firms
to do in partnership with us
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can be time-consuming,
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and every firm might have a
different way of approaching it.
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We'd like to work
with firms on that.
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We'll be flexible
about different approaches.
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-Susan, I want to thank you
for being here today.
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I think firms are going to find
this information
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extremely helpful.
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-Thank you so much
for having me, Chip.
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-I encourage you to read
the regulatory notice
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for full details about the
529 plan share class initiative.
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And finally, for all of us
at FINRA, thanks for watching.
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