Thursday, June 21, 2007
NASD announced today that it has fined Wachovia Securities LLC of Richmond, VA, $2 million for failing to adequately supervise its fee-based brokerage business between 2001 through 2004. In addition, NASD ordered Wachovia to identify and pay restitution to approximately 1,300 customers who were inappropriately allowed to continue maintaining fee-based accounts, or who were inappropriately charged account fees on Class A mutual fund share holdings for which they had already paid a sales load. The firm also is required to retain an outside consultant to review its process of identifying and paying restitution to customers.
"Firms must have systems and procedures which are tailored to reasonably supervise their business activities," said NASD James Shorris, Executive Vice President and Head of Enforcement. "In the case of fee-based accounts, firms had an obligation to their customers to assess the appropriateness of such accounts both when the accounts were opened and periodically thereafter. Here, Wachovia failed to implement a system designed to ensure that an assessment of the appropriateness of the fee-based account occurred. This failure was compounded by the firm's failure to prevent certain fee-based customers from being charged both an account fee and a sales charge for the same mutual fund investments."
Abuses in fee-based accounts became prevalent in an era where competitive pressures reduced the profitability of commission-based accounts, so it's good to see the regulators bringing these actions. See NASD Fines Wachovia Securities $2 Million for Fee-Based Account Violations.