FINRA has fined the activities of Stifel and Oppenheimer on similar charges over the past two years.
FINRA has ordered Merrill Lynch, Pierce, Fenner & Smith, Inc. to pay more than $ 8.4 million in damages to more than 3,000 clients who incurred potentially excessive selling costs in connection with the first rollovers of Unit Investment Trusts (UIT) .
The Financial Sector Regulator also fined the company $ 3.25 million for failing to reasonably oversee ITU’s early renewals.
An UIT is an investment company that offers investors shares, or “units”, in a fixed portfolio of securities as part of a single public offering that ends on a specific maturity date, often after 15 or 15 minutes. 24 months.
ITUs are generally designed as long-term investments and have selling costs based on their long-term nature, including upfront and deferred selling costs and creation and development costs.
A registered representative who recommends that a client sell their ITU position before the expiry date and then “carry over” those funds to a new ITU results in an increase in the client’s selling costs over time, which raises costs. adequacy issues.
Merrill Lynch executed more than $ 32 billion in ITU transactions between January 2011 and December 2015, including approximately $ 2.5 billion in which the ITUs were sold more than 100 days before their due date and some or all of the all of the proceeds were used to purchase one or more ITUs (early turnarounds).
FINRA found that the company’s monitoring system was not reasonably designed to identify these early renewals. While the firm’s automated reports identified when a representative recommended an early turnover of an ITU held for seven months or less, the firm had no identifying report when a representative recommended an early turnover of an ITU that had been detained for more than seven months.
As a result, Merrill Lynch failed to identify that his representatives had recommended thousands of potentially inappropriate early renewals that, collectively, could have resulted in more than 3,000 accounts receivable incurring more than $ 8.4 million in service charges. sale that they would not have incurred if they had held the ITUs until their expiration date.
Jessica Hopper, Executive Vice President and Head of Enforcement at FINRA, said: “Customers often incur unnecessary costs when representatives recommend short-term sales of products that are intended to be long-term investments. term. FINRA member companies must put in place sufficient monitoring systems to identify these potentially inappropriate transactions. Providing compensation to aggrieved investors remains a top priority for FINRA. “
Last year, FINRA fined Stifel, Nicolaus & Co $ 1.75 million, as well as a restitution of $ 1.9 million to more than 1,700 customers, in connection with the first rollovers of Unit Investment Trusts.
In 2019, it was found that Oppenheimer & Co. Inc. failed to reasonably oversee early mutual fund (ITU) renewals. FINRA ordered Oppenheimer & Co. Inc. to pay more than $ 3.8 million in restitution to customers and fined the company $ 800,000.