Merrill Lynch fined over 529 plans
WASHINGTON — Industry regulators have fined
The Financial Industry Regulatory Authority also censured Merrill Lynch in a disciplinary action disclosed yesterday.
The authority found that Merrill Lynch failed to maintain adequate supervisory procedures to ensure that its representatives were considering the potential tax benefits of recommending a client choose a 529 plan in the state where they live, rather than advising a customer select an out-of-state plan.
The plans allow money to be withdrawn for college expenses free of federal taxes. Each plan is sponsored by a state which can set its own guidelines. Many states also offer state tax deductions or credits to residents. However, depending on where the investor lives, an out-of-state plan may offer lower fees or other advantages that offset any home-state tax benefits.
From June 2002 through February 2007, Merrill Lynch sold over $3 billion in 529 plans, and required its representatives to consider potential state tax benefits among the factors to determine whether to recommend an out-of-state plan to a customer. However, Merrill Lynch failed to maintain systems and procedures to ensure that representatives were adequately considering those benefits in their analyses, the authority said.
Under the agreement, Merrill Lynch did not admit to or deny the organization’s findings. Merrill Lynch spokesman Bill Halldin said the firm took steps several years ago to ensure that employees were documenting discussions of tax benefits with clients.