Merrill Lynch was fined $500,000 for giving some bad advice to their clients regarding 529 plans. Section 529 plans are special funds that allow families to set aside money for future college expenses and come with various tax-related incentives.
Merrill Lynch made $3.54 billion for it’s parent Bank of America last year. For those of you without a calculator, that is (hang on …. calculating … what’s that funny e-4?), chump change.
Okay, to be technically accurate 1.4124293785310734463276836158192e-4 of that profit.
The Financial Industry Regulatory Authority (FINRA) investigated:
FINRA 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 529 plans allow the tax-free withdrawal of the funds to pay for college expenses including tuition, books and housing. There are also tax incentives in each of the various states offering the plans which are separate from the federal rules along with a variety of fees. It can be complicated and it is not unusual that investors would seek expert advice.
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, FINRA said
So who are these FINRA guys? They sound very official.
The Financial Industry Regulatory Authority (FINRA)
is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect America’s investors by making sure the securities industry operates fairly and honestly. All told, FINRA oversees nearly 4,580 brokerage firms, about 162,850 branch offices and approximately 630,695 registered securities representatives.
What the FNRA site does not tell you flat out is that it is a self-policing group of member investment firms. Which means that it decides the penalty, it decides whether to even investigate and it decides pretty much anything that it wants. And it’s staff of over 3,000 are paid by the industry it regulates.
Government agencies oversee investment firms but they are at least one layer removed (however co-opted they often seem) from those whose business activities they regulate.
So what’s the big deal? We have all these federal agencies watching these guys so why do we care about whether these self-regulating firms are keeping a watchful eye on things?
Because we are on the verge of losing some of the safeguards that were put into place last year with the financial regulation overhaul.
Ready … aim … defund
First up, the Dodd-Frank Reforms:
Rep. Ed Royce, R-Calif., who sits on the powerful House Financial Services Committee, told the American Banker this week that protecting consumers should take a back seat to ensuring banks’ financial health. “We need to address giving the regulators for safety and soundness the ability to trump the actions on consumer protection if they threaten safety and soundness.”
But why stop there? Consumers have been fair game for a long time and we are used to getting the short end of the stick. The de-funders are after bigger fish:
Rep. Scott Garrett, R-N.J., who also sits on the House Financial Services panel, said earlier this month the party may try to block parts of Dodd-Frank that tighten rules on derivatives. How? By limiting funding for regulatory agencies, including the SEC and the Commodity Futures Trading Commission. As he recently told the Global Power Report, an energy industry trade publication, in discussing plans to undermine Dodd-Frank “I think funding will certainly be an area we will be revisiting.”
A sad fact of life is that agencies like the SEC have to have their budgets approved every year. And now those budgets will have to pass the Republican House of Representatives.
Need more? Rep. Spencer Bachus (R-TX):
“We have not conducted any meaningful oversight” under Democratic leadership”
“The administration will no longer receive a pass when it comes to aggressive oversight of their failed economic policies, and that includes extensive review of all the job-killing provisions in [the Dodd-Frank Wall Street Reform and Consumer Protection Act],” he added.
It is especially ironic to see the banksters treat 529 funds so casually because going to college is part of the American dream. And nothing says “crush the American dream” quite like the financial services industry getting right back to where they were in 2008 before they crashed the economy.
I wish we had been able to make these regulations less subject to the whims of the current crop of legislators. I wish we had been able to retain our majorities so we would not even be having this conversation. But wishes aren’t horses, ponies or unicorns.
We need sturdier regulations “next time”. Because we are the chumps and it is not going to change unless we elect more and better Democrats “next time”.