Ex-Amex unit failed to tell customers of home-state plan advanatges. NASD has fined Ameriprise Financial Services $500,000 for inadequately supervising its sale of 529 plans through a three-and-a-half-year period ending last year. The private-sector securities industry regulator also ordered Ameriprise to pay $750,000 into 500 client accounts “disadvantaged by” the brokerage’s “supervisory failures.”

Minneapolis-based Ameriprise was known as “American Express Financial Advisors” at the time of the alleged lax supervision. The company spun off from American Express a few months ago.

NASD says that Ameriprise’s supervision of 529 sales was inadequate between May 2001 and year-end 2004, when the firm sold more than $1.1 billion in 529 plans to over 138,000 customer accounts. The brokerage’s compliance procedures for 529 sales were initially “general compliance requirements relating to the sale of all products offered by Ameriprise,” says NASD.

One state

More specifically, NASD says that from May 2001 through October 2003, when about 25 states were sponsoring 529 plans with tax benefits for in-state purchases, Ameriprise was offering only Wisconsin-sponsored plans – and failing to tell customers of the tax advantages to buying home-state plans where available. In that initial period Ameriprise sold more than $200 million in Wisconsin 529 plans to customers living in states with tax-advantaged 529 plans. That was about 32% of its total 529 sales for the period.

“NASD has long been concerned that investors understand the differences between the many different 529 plans that are being offered today and choose a plan that is right for them," says NASD vice chairman Mary Schapiro. "These are complex investments, and individual investors need to consider a number of factors when choosing a 529 plan, including its performance, investment choices, fees and expenses and its tax implications.”

Ameriprise upgraded its compliance requirements in October 2003, but they “contained no procedures or guidance to assist their brokers in making a suitability determination,” according to NASD. In any case, Ameriprise kept selling Wisconsin plans to people in states with tax incentives in place for buying the local brew. In the three-and-a-half-year period in question, Ameriprise sold $1.1 billion in 529 plans to 138,000 customer accounts.

“These 529 plan sales occurred at a time when Ameriprise did not have adequate procedures in place to take state income tax benefits into account when determining the suitability of 529 sales,” says NASD. “Among other things, Ameriprise did not have procedures requiring that registered representatives consider the state income tax benefit that might be obtained by purchasing an in-state plan and weigh that benefit against other benefits that might be provided by a recommended out-of-state plan, such as investment performance, investment choices, fees and expenses, or other factors.”

Ameriprise says it’s “pleased to have resolved this matter.” It adds that it has “modified its procedures with respect to these plans.”

Three months ago Ameriprise agreed to pay nearly $7.4 million in fines, investor-restitution payments and costs to settle a New Hampshire enforcement action against it for allegedly pushing its own underperforming mutual funds on private investors without informing them of non-proprietary alternatives.

Ameriprise supports a network of about 12,000 brokers and registered investment advisors on in-house and independent platforms, including the broker-dealer, RIA and insurance brokerage platforms of Omaha-based Securities America.

NASD used to stand for “National Association of Securities Dealers.” Several years ago, however, the regulator formally re-branded itself as NASD, period. –FWR

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