Brokerages settle mutual fund fee case
Morgan Stanley and three other brokerages agreed Wednesday to refund $43.8 million in fees to settle NASD claims that they overcharged thousands of clients when selling mutual funds.
Morgan Stanley DW Inc., Royal Bank of Canada subsidiary RBC Dain Rauscher Inc., Edward D. Jones & Co. and Royal Alliance Associates Inc. imposed upfront sales fees for mutual fund shares even though the funds themselves had stopped charging the fees, said the NASD, formerly the National Assn. of Securities Dealers.
The brokerages “deprived their customers of substantial discounts on mutual fund purchases,” James Shorris, the NASD’s head of enforcement, said in a statement. The firms didn’t have adequate systems to gauge when customers were being charged improperly, the NASD said.
Other brokers may face similar sanctions as the NASD continues to investigate mutual fund sales practices, said Katherine Malfa, a vice president of enforcement at the Washington-based regulator. “We’re looking at a number of other cases in this area,” Malfa said.
The NASD has accused at least one other firm of failing to give discounts to brokerage clients who were entitled to them when they bought mutual funds. Axa Advisors, a unit of Paris-based insurer Axa, agreed to pay a $250,000 fine and refund customers as part of a settlement in November 2004. It didn’t admit or deny wrongdoing.
Under the accord, Morgan Stanley and the other firms will repay thousands of investors who bought shares of mutual funds managed by firms including Eaton Vance Corp. and Putnam Investments, the NASD said.
Edward Jones, based in St. Louis, will pay the largest amount, $25 million plus interest. New York-based Morgan Stanley will pay $10 million, and RBC Dain Rauscher, of Minneapolis, will dole out $6.8 million. New York-based Royal Alliance Associates Inc., a unit of American International Group Inc., will reimburse clients $1.6 million.
The firms also agreed to pay fines totaling $850,000 and hire outside examiners to oversee the repayments to customers. None of the companies admitted or denied wrongdoing.
