The North American Securities Administrators Association (NASAA) has announced a $17m settlement with Edward D Jones & Co, LP after conducting an investigation into the broker-dealer’s supervision of customers paying front-load commissions for Class A mutual fund shares in light of later moving brokerage account assets into fee-based investment advisory accounts.

As part of the settlement, Edward Jones will pay each of the 50 states, Washington, DC, the US Virgin Islands, and Puerto Rico, an administrative fine of approximately $320,000.

Supervisory procedures found lacking

NASAA’s four-year investigation was led by a working group of 14 state securities regulators. The investigation looked into how Edward Jones supervised moving customers’ assets from brokerage to advisory accounts following the US Department of Labor’s (DOL’s) 2016 fiduciary rule under the Obama Administration.

That rule mandated that investment advice for retirement accounts was subject to fiduciary standards. (The Fifth Circuit Court of Appeals later struck down the rule, and the then-Trump presidential administration opted not to appeal.)

According to a consent order filed by Arkansas state regulators against Edward Jones, the investigation found that the firm charged front-load commissions for investments in Class A mutual fund shares in situations where the customer sold or moved the mutual fund shares sooner than originally anticipated.

“This settlement reflects the collaborative and determined approach state securities regulators take to resolve a national problem.”

Amanda Senn, Co-Chair, NASAA Enforcement Section Committee

When the DOL issued its 2016 fiduciary rule, NASAA contends that Edward Jones urged its advisers to speak with clients about how its mandates would affect different retirement accounts, with more stringent regulations on brokerage retirement accounts.

Some customers opted to move their money to advisory accounts, which by law had a fiduciary standard of care. This meant, though, that some clients who had recently purchased Class A shares would be hit twice with fees, both by the front-end load of the mutual fund purchase and the fee-based setup for advisory accounts. 

The states found gaps in Edward Jones’s supervisory procedures in this respect.

State collaboration

In evaluating the supervisory failures and determining the appropriate resolution, the 14 states considered certain facts such as the positive performance of the investment advisory accounts as compared to the brokerage accounts.

NASAA Enforcement Section Committee Co-Chair Amanda Senn, Director, Alabama Securities Commission, commended her fellow state securities regulators for their work in investigating the matter that led to the settlement. “This settlement reflects the collaborative and determined approach state securities regulators take to resolve a national problem,” said Senn.

“We appreciate the ongoing cooperation of Edward Jones throughout this investigation and settlement process. Firms that offer both brokerage and investment advisory services should be mindful that customers are receiving the services the customer wants at an appropriate price,” she added.