According to FINRA, Wells Fargo Advisors Financial Network, LLC and Wells Fargo Clearing Services, LLC were censured and ordered to pay $3,367,929 jointly and severally in restitution to customers for failing to establish and maintain a supervisory system reasonably designed to supervise representatives' 529 plan share-class recommendations. No fines were imposed in recognition of the firms' extraordinary cooperation.

The firms were found in violation of supervisory obligations related to 529 college savings plans. The firms shared written supervisory procedures that did not reasonably address the share-class suitability factors specific to 529 plan investments. The procedures for 529 plans did not specifically address the relationship between account beneficiary age, the number of years until funds would be needed to pay qualified education expenses, and 529 plan share-class suitability. Instead, the procedures merely referenced suitability factors generally applicable to all investment products, such as fees and expenses, investment objective, and risk tolerance.

Additionally, the firms' electronic alert system did not include parameters to identify 529 plan share-class recommendations that appeared to be inconsistent with the age of the account beneficiary or the account's stated investment horizon. As a result, the firms failed to provide supervisors with the tools to alert them to Class C share recommendations that may have been inconsistent with the account beneficiary's age. Class C shares typically have higher ongoing expenses and shorter suggested holding periods than Class A shares, making them generally unsuitable for young beneficiaries with long time horizons until college.

This case is part of FINRA's broader 529 Plan Share Class Initiative, which resulted in nearly $17 million in restitution to approximately 10,000 investors across multiple firms. The initiative demonstrates FINRA's commitment to using targeted examinations, or "sweeps," to identify systemic issues across the industry and ensure harmed investors receive restitution. Investors with 529 plans should review their account statements and share class selection to ensure they are not paying excessive ongoing fees due to unsuitable share class recommendations. Parents and grandparents saving for college should ask their financial advisors to explain the differences between share classes and why a particular share class is recommended based on the beneficiary's age.