Products October 15, 2008

Matrix Launches RetireTool(k)it

Matrix Financial Solutions, Inc., announced the release of its advisory desktop product, RetireTool(k)it.
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RetireTool(k)it, which will be available through Matrix’s wholly owned subsidiary, MG Advisory Services, is a Web application for end-to-end tasks—from fund selection and monitoring, investment policy statement (IPS) preparation, point-of-sale brochure design, and plan enrollment kit creation, according to a Matrix press release. The open-architecture application is for advisers, brokers, and third-party administrators.

The application sits in front of an investment research engine, powered by another Matrix affiliated company, Prima Capital. Advisers can use RetireTool(k)it to select and monitor funds themselves, or hire MG Advisory Services to fill a co-fiduciary role with the plan sponsor, according to Matrix.

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The process begins with the adviser entering fund search mandates. RetireTool(k)it then produces investment products that meet those mandates, from the available universe of funds, and delivers an IPS based on the input, according to the release. The RetireTool(k)it also generates automated quarterly fund and annual plan review reports for the adviser to deliver to their plan sponsor clients.

When MG Advisory Services is hired as co-fiduciary and the RetireFocus funds (target-date funds) are included as the qualified default investment alternative (QDIA) option, customized enrollment booklets to the plan are provided at no additional cost, according to Matrix.

“The first thing to do is to make selling a 401(k) plan using open architecture as easy as it is with a bundled product. RetireTool(k)it is a significant step toward that objective,’ said Stewart Cohune, president of MG Advisory Services. “RetireTool(k)it represents the best of both worlds. It is full disclosure, fee transparency, mutual funds at NAV, with the automated and professional reporting consistent with bundled provider output. Not to mention it will save the adviser an inordinate amount of time and resources that he or she can now spend prospecting.’

The highlights of the new tool, according to Matrix, are:

  • rational open architecture,
  • fund selection,
  • investment policy statement,
  • point-of-sale material,
  • optional co-fiduciary services,
  • annual plan review,
  • branded enrollment kits,
  • core fund list,
  • ERISA 3(21) fiduciary status with plan sponsor.

    More information is available at

    www.matrixfinancialsolutions.com.
Compliance October 15, 2008

FINRA Fines SunTrust for Fee-Based Account Violations

The Financial Industry Regulatory Authority (FINRA) fined SunTrust Investment Services, Inc., $700,000 for violations relating to its fee-based brokerage business and excessive commissions.
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FINRA said that SunTrust failed to monitor the appropriateness of its fee-based brokerage accounts, even at times charging inactive accounts and double charging both commission and asset-based fees. FINRA also said the firm overcharged commissions on certain low-priced stocks.

In settling this matter, SunTrust neither admitted nor denied the charges, but consented to the entry of FINRA’s findings, according to a FINRA release. In addition to the fine, the firm voluntarily refunded more than $713,000 in fees and interest to affected accountholders. FINRA took into account the refund when assessing the fine, the agency said.

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Background on Fee-Based Accounts

Fee-based brokerage accounts have been obsolete since March 2007. The accounts first became available in 1999 as a result of a proposed Securities and Exchange Commission (SEC) rule exempting brokers from certain elements of the Investment Advisors Act of 1940, according to FINRA. However, in March 2007, a federal court struck down the final version of that rule. SunTrust terminated its fee-based accounts, Portfolio Choice accounts, on Dec. 31, 2006.

Customers in a fee-based brokerage account were typically charged an annual fee, which was usually a percentage of the assets in the account with an annual minimum, rather than a commission for each transaction as in a traditional brokerage account. Firms were required to determine whether a fee-based account was appropriate for an investor based on the investor’s preference and projected cost to the investor. Also, it depended upon whether alternative fee structures were available and the services provided, according to FINRA.

“Firms that offered fee-based brokerage services had an obligation to do so using supervisory systems that were specifically designed for such business activities,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement at FINRA. “SunTrust’s former program was yet another example of a firm that failed to put in place supervisory systems designed to ensure that its fee-based account was appropriate for the customers it placed in the program. In addition, SunTrust also failed to monitor these accounts to ensure that they remained appropriate for the customers who opened them.”

SunTrust Violations

FINRA said that during the period from November 2002 through December 2005, SunTrust opened more than 2,644 Portfolio Choice accounts without adequately assessing whether the accounts were appropriate for its customers. SunTrust then failed to appropriately monitor whether the fee-based accounts remained appropriate for its customers.

FINRA said at least 36 Portfolio Choice accounts conducted no trades for at least eight consecutive quarters—and those 36 accounts were charged more accounts $129,000 in fees during the last four inactive quarters. FINRA also found that SunTrust allowed numerous customers to maintain accounts in the program and to pay for those accounts even though they had not traded in years.

Some accountholders paid both a commission and an asset-based fee on the same assets, FINRA said. The double charges resulted in approximately $437,500 in excess fees and/or commissions paid by SunTrust customers.

During the period from Jan. 1, 2002, through Sept. 2, 2005, SunTrust failed to establish a supervisory system, including written procedures to ensure that its registered representatives charged its customers fair and reasonable commissions, according to FINRA. SunTrust used an automated commission system that allowed commissions over 5% to be charged when low-priced and/or low quantities of stocks were bought or sold. As a result, certain customers were charged excess commissions totaling nearly $100,000.

Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA’s free BrokerCheck at www.finra.org/brokercheck or by calling 800.289.9999.

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