NEW YORK -(Dow Jones)- The National Association of Securities Dealers fined Chase Investment Services Corp. and MetLife Securities Inc. $500,000 each for failing to supervise the sales of 529 college savings plans.
Each firm will also have to reimburse about 300 customer accounts that were affected by the supervisory failures, with Chase paying about $288,500 and MetLife (NYSE:MET) paying about $376,000.
The NASD fine and ordered reimbursements are for violations starting in January 2002 and ending in August 2004 at Chase and March 2005 at MetLife (NYSE:MET) . During those timeframes, the NASD said, Chase's 529 plan sales topped $134 million, and MetLife's (NYSE:MET) exceeded $150 million.
The NASD found the firms sold the plans without providing specific criteria or guidance for their registered representatives to use when recommending the plans, or for supervisors to use when reviewing sales.
Specifically, the NASD found the firms didn't have any specific procedures requiring that registered representatives consider potential tax benefits when determining suitability.
The 529 college savings plan - named for its place in the U.S. tax code - have become one of the most popular tools for families to use for college savings. The earnings grow and can be withdrawn free of federal taxes if they are used for post-secondary education.
A MetLife (NYSE:MET) spokesman said the firm enhanced its procedures for 529 plans in March 2005, adding that the company recognizes that college savings plan are important to its clients.
Chase Investment Services, based in Chicago, is a brokerage subsidiary of JPMorgan Chase & Co. (NYSE:JPM) (JPM). New York-based MetLife Securities is a subsidiary of MetLife, Inc. (NYSE:MET) (MET).
Monday's announcement marks the second and third cases to result from NASD examinations of the sales of the plans. In October 2005, Ameriprise Financial Inc. (NYSE:AMP) (AMP), formerly the American Express Financial Advisors unit of American Express Co. (NYSE:AXP) (AXP), agreed to pay a $500,000 fine and $750,000 in compensation to about 500 customers, who could have received tax benefits if they had invested in the 529 plans then available in their own states.
About 30 states offer additional tax and other benefits to residents who invest in their state plans. For this reason, consumers should consider the benefits of their in-state 529 plan before making an investment choice. In July, Pennsylvania residents became the first in the nation to receive a state deduction for any 529 college savings plan investment, not just a contribution to their state plan.
