The Financial Industry Regulatory Authority has fined Banorte Securities International $1.1 million for improper sales of B shares of offshore mutual funds, as well as inadequate supervisory systems to monitor the sales.


In addition, the Mexican-based investment firm, which includes a broker/dealer and bank, will repay more than 300 customers for 1,400 purchase transactions between 2003 and 2004.


“Firms have a suitability obligation to consider all relevant factors when recommending mutual fund investments to customers, whether those customers live inside or outside the United States,” said Susan L. Merrill, FINRA executive vice president and chief of enforcement. Most of Banorte’s customers reside in Mexico. “Firms must consider all available share classes and pricing features in determining what is most advantageous to the customer.”

FINRA found that Banorte recommended Class B shares to investors nearly 100% of the time. These carry higher fees than Class A as well as a declining contingent deferred sales charge for a period of time. Instead, FINRA said, Banorte customers would have been better off purchasing Class A shares, particularly because the brokerage had negotiated lower front-end sales charges for Class A shares with several offshore mutual fund companies.


Further, FINRA found that the firm’s written policies and procedures didn’t require its registered representatives to weigh the economic consequences of purchasing different share classes or to explain those consequences to customers.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.