WASHINGTON — The Financial Industry Regulatory Authority has censured and fined Merrill Lynch, Pierce, Fenner & Smith Inc. $500,000 for failing to establish and maintain written supervisory procedures to ensure that its representatives considered customers’ state income-tax benefits in their suitability analyses of 529 college saving plans.

FINRA found that from June 2002 through February 2007, Merrill required its registered representatives to consider potential tax benefits offered by a state in which a client resided as one of a variety of factors before recommending an out-of-state plan.

However, the firm, which is now part of Bank of America, had faulty written supervisory procedures that did not adequately ensure income-tax benefits were considered as part of the firm’s sales pitches, in violation of the Municipal Securities Rulemaking Board’s Rule G-27 on supervision, according to FINRA.

Merrill Lynch sold $3 billion of 529 plans during the review period, the self-regulator said.

Bill Halldin, a spokesman for Bank of America Merrill Lynch, said: “In light of concerns raised, we have reminded our employees that selection of college savings plans includes consideration of state tax advantages as one factor in the investment decision. In addition, we took steps several years ago to ensure employees document that this factor was discussed with clients.”

Created under section 529 of the Internal Revenue Code, the the plans are tax-advantaged investment programs designed to help parents or other adults finance the higher education costs of children or beneficiaries. Under the plans, the adult invests money on a tax-exempt basis in a trust established by a state. The interests in the trusts are municipal fund securities, which are more like mutual funds than municipal securities, but are regulated by the MSRB.

During the review period, Merrill offered and sold the NextGen College Investing Plan, administered by the Finance Authority of Maine. NextGen was the only 529 plan that Merrill offered and sold on a nationwide basis, though it also offered and sold plans sponsored by several additional states to customers in those states.

As part of its settlement with FINRA, Merrill neither admitted nor denied the self-regulator’s findings. In addition to the $500,000 fine, it agreed to distribute a letter to each current NextGen customer instructing them to call the firm with any inquiries, concerns or complaints about their 529 investment.

If requested, Merrill must assist in transferring or rolling over any customer’s investment into a 529 plan of the customer’s choice within his home state, regardless of whether the firm currently offers such plan. Merrill Lynch must waive any client fees or costs.

In 2003, the NASD, a predecessor organization to FINRA, probed whether more than a dozen broker-dealer firms were selling investors shares in out-of-state college savings plans without disclosing to them that they would not get the state tax benefits that they would receive from plans offered by their home states.

The following year, NASD released a report that found that more than 90% of the dollar value of college savings plan sales of six large broker-dealer firms were made to nonresidents of states offering the plans, raising suitability questions.