FINRA Fines Bank of America Corp.’s Merrill Lynch $500,000 Over Alleged Oversight Failures of 529 Plans

The Financial Industry Regulatory Authority is ordering Merrill Lynch, a Bank of America Corp. unit, to pay a $500,000 fine over alleged oversight failures involving 529 plans, a college-savings product. Merrill Lynch has also been censured by FINRA in a disciplinary action.

According to the SRO, Merrill Lynch lacked the adequate supervisory procedures necessary to make sure representatives were taking into account clients’ state income-tax benefits when determining whether they should invest in a 529 plan within their state of residence or in one outside the state. Merrill Lynch sold more than $3 billion in 529 plans between June 2002 and February 2007.

With 529 plans, which are considered municipal securities, money can be withdrawn to pay for college expenses without the imposition of federal taxes. Many states offer credits or state tax deductions for residents that invest in a 529 plans in the state. That said, depending on where the investor resides, investing in a plan outside the state can be more beneficial than the benefits received from a 529 plan in the investor’s home state.

However, FINRA contends that the only 529 plan that the financial firm offered and sold nationally was Maine’s NextGen College Investing Plan. Merrill Lynch must now send letters to clients who lived in states that offered 529-related tax benefits but ended up opening accounts with Maine’s NextGen College Investing Plan through Merrill Lynch. These customers will be given instructions on how to contact the financial firm. If they want to move their funds to a home-state 529 plan, Merrill Lynch has to help, as well as waive a number of fees.

By agreeing to settle with FINRA, Merrill Lynch is not denying or admitting to the SRO’s findings.

Related Web Resources:
Merrill fined $500,000 over college-savings plans, Bloomberg, January 19, 2011
FINRA Censures, Fines Merrill Over Colleges Saving Plans, OnWallStreet, January 19, 2011

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Bank of America Merrill Lynch to Settle UIT Sales-Related FINRA Charges for $2.5 Million, Stockbroker Fraud Blog, August 22, 2010
Bank of America To Settle SEC Charges Regarding Merrill Lynch Acquisition Proxy-Related Disclosures for $150 Million, Stockbroker Fraud Blog, February 15, 2010
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