Financial Industry Regulatory Authority (Finra) fined Cambridge Investment Research independent broker network $ 150,000 for allegedly failing to oversee its brokers’ transactions in mutual funds and share classes of expensive mutual funds.
ITUs are an investment product whereby an asset manager selects a portfolio of stocks, bonds or other securities and holds them in a trust on behalf of an investor. The asset manager sells the portfolio of securities after a maturity date set for the ITU – often around 24 months after its creation – and distributes the proceeds to the investor.
Finra said a typical 24-month ITU contained an upfront selling charge of 1%, deferred selling charge of 2.5%, and creation and development charge of 0.5% between July 2013 and December 2014. , the period of the alleged Cambridge violations. These last two loads are assessed between the third and sixth month of ITU’s term, Finra said, creating a set of business risks.
“A registered representative who recommends the sale of a client’s ITU position before the due date and transfers that investment to a new ITU results in increased selling costs for the client,” said Finra. “Due to the long-term nature of ITUs, their structure and up-front costs, short-term trade in ITUs may be inappropriate and raises adequacy issues. “
Finra found that Cambridge’s automated trade monitoring system was generating 11,910 alerts for potentially inappropriate trades in UITs and Class A mutual fund stocks – which Finra said resulted in “significant upfront costs.” – from July 2013 to December 2014. However, the company did not reject any of the transactions.
“Without admitting or denying the findings, Cambridge accepts Finra’s findings,” a company spokesperson said.
Cambridge’s mutual fund sales practices have been subject to regulatory review in the past. In March 2019, the company voluntarily refunded $ 6.2 million to its clients after improperly placing its clients’ assets in more expensive share classes of mutual funds with 12b-1 fees, fees often used to pay the brokers who sell the funds. The company has self-reported the violations to the Securities and Exchange Commission as part of a commission-wide crackdown on 12b-1 charges.
It also paid a fine of $ 250,000 in 2015 for allegedly failing to apply discounts to qualifying ITU purchases of its customers.
Cambridge, based in Fairfield, Iowa, oversees approximately $ 106 billion in assets through a network of 3,366 advisers.
You can read the full disciplinary report of Finra here.