Broker Is Fined in Probe of 529 Plans

Ameriprise Financial Inc. must pay $1.25 million to settle an enforcement action brought by regulators over sales of Section 529 college savings plans amid a wide-ranging inquiry into the popular tax-advantaged accounts, regulators said Wednesday.

Brokerage regulator NASD said the enforcement action against broker and insurer Ameriprise was its first to result from a long-running probe into 529 sales practices at 20 securities firms.

“There are additional investigations underway,” said Thomas Lawson, NASD enforcement chief counsel.

NASD ordered Ameriprise, formerly known as American Express Financial Advisors, to pay a fine of $500,000 and to pay an additional $750,000 to compensate customers.

An attorney for Ameriprise in Washington was not available for comment.

Regulators for months have been looking into abuses by brokers that sell 529 plans, which in recent years have received a flood of money from investors anxious to sock away funds to cover their children’s college costs.

With more than 80 plans now marketed nationwide, assets in 529 accounts topped $59 billion at the end of the second quarter this year and have continued to grow, according to consulting firm Financial Resources Corp.

Section 529 plans debuted in 1997 and are named after the federal tax rules under which they were created, offering tax breaks for setting aside college savings.

Questions were raised by regulators last year about excessive fees and sales of out-of-state plans to clients who might be better off in terms of taxes with in-state plans.

NASD said it found that from May 2001 through the end of 2004, Ameriprise sold more than $1.1 billion of 529 plans to more than 138,000 customer accounts. During that period, NASD said, “the firm’s supervision of 529 sales was inadequate.”

NASD, formerly the National Assn. of Securities Dealers, said Ameriprise neither admitted nor denied wrongdoing, as is customary in such settlements.