Banorte Securities International, Ltd. has agreed to a $1.1 million fine to settle charges that it recommended to customers that they buy Class B off-shore mutual fund shares even though they would have benefited more financially by buying Class A shares. The Financial Industry Regulatory Authority announced the settlement agreement last week.
By agreeing to settle, Banorte is not admitting to or denying the charges. The company also agreed to a plan that would address more than 1,400 transactions involving accounts in over 300 customer households.
Banorte had been accused of having inadequate supervisor systems to oversee the sales of off-shore mutual fund shares, including guidelines that failed to properly advise registered representatives that Class A share purchases eligible for front-end loans were more affordable than Class B Shares.
According to FINRA enforcement head Susan L. Merrill, firms are obligated to consider all share classes and pricing features that would most benefit a customer-regardless of whether or not that clients resides in the United States or abroad. The majority of Banorte’s customers reside in Mexico. Merrill also said that firms must take all relevant factors into considerations when making mutual fund recommendations to clients.
Class A Shares
These shares come with a front-end sales charge and lower ongoing fees that are asset-based.
Class B Shares
While these shares usually do not come with a front-end sales fee, their asset-based fees are usually higher than Class A Shares’ fees.
FINRA alleges that during 2003 until May 2004, the majority of Banorte mutual fund sales involved Class B shares even though investing in Class A Shares could have resulted in higher returns for clients.
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