Firms Fined on Class B, C Share Fund Sales

Merrill Lynch & Co., Wells Fargo & Co. and LPL Financial Services were fined a total of $19.4 million Monday by the NASD for selling investors higher-cost mutual fund shares when cheaper options may have been available.

In separate cases, Merrill Lynch was fined $14 million, Wells Fargo was penalized $3 million and LPL, also known as Linsco, was fined $2.4 million, according to the NASD, the brokerage regulator formerly known as the National Assn. of Securities Dealers.

The firms also will compensate investors, and the value of those reimbursements could exceed the fines.

At issue are sales of Class B or Class C shares of funds, which usually carry higher annual management fees than Class A shares, the NASD said.

The companies acted “without considering or adequately disclosing on a consistent basis” to investors that Class A shares may have been a better deal, the NASD said. It examined 139,400 transactions involving 29,500 households at the firms between January 2002 and July 2003.

The fund share-class issue has been a hot button for regulators in recent years. Class A shares typically charge an upfront sales fee but offer volume discounts on purchases; Class B and Class C shares generally don’t have upfront sales charges but impose higher ongoing fees.

Although investors are buying the same fund portfolio, the overall fees can be significantly less for Class A shares over time.

The three firms agreed to pay the fines without admitting or denying the allegations.

“We have already introduced changes to help our financial advisors provide better advice for each of their clients and help us improve the services we offer,” a spokesman for New York-based Merrill Lynch said.

A Wells Fargo spokesman in San Francisco said, “We’ve updated our procedures in line with industry and regulatory standards, and we look forward to putting this behind us.”

LPL Chief Executive Mark Casady said, “LPL has strived to maintain policies and procedures regarding B-share and C-share sales consistent with industry standards.”