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U.S. state securities regulators have reached a settlement with brokerage firm, Edward D. Jones & Co., L.P., over alleged failings that involved investors being overcharged when they paid upfront sales charges on mutual funds, but were soon shifted into fee-based advisory accounts.

The umbrella group of U.S. state and Canadian provincial regulators, the North American Securities Administrators Association (NASAA), announced a US$17-million settlement with the firm, which will see it pay a US$320,000 penalty to each of the 50 states, along with authorities in Washington, D.C., the U.S. Virgin Islands, and Puerto Rico.

The settlement followed an investigation that was led by a task force of 14 state regulators into the firm’s handling of client accounts in light of reforms that were adopted in 2016 by the U.S. Department of Labor (DOL) that applied a fiduciary standard to certain investment advice in retirement accounts.

In response to that rule, the firm adopted restrictions on its brokerage accounts, which resulted in some clients shifting into fee-based advisory accounts.

According to NASAA, its investigation found gaps in the firm’s procedures that resulted in clients being charged front-end commissions for mutual funds that were held in brokerage accounts, but were then sold, or moved into fee-based advisory accounts, “sooner than originally anticipated.”

As a result, some investors were denied the full benefit of having paid higher upfront commissions, noted a consent order between the firm and the Arkansas Securities Commissioner.

That order alleged that, between 2016 and 2018, certain clients who paid upfront sales charges, but soon moved into advisory accounts, collectively paid US$10 million in front-end loads, without receiving fully matching offsets in advisory fees.

In that order, the firm agreed to settle the case without admitting or denying the regulator’s findings.

“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,” said Amanda Senn, director of the Alabama Securities Commission, and co-chair of NASAA’s enforcement section committee, in a release.