Wells Fargo fined $3.1m as Finra concludes ITU investigation

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The Financial Industry Regulatory Authority (Finra) has completed a multi-year regulatory investigation into the sale of unit investment trusts (UITs), resulting in approximately $16.8 million in settlements and $6.6 million in fines with six brokerage firms.

Finra’s final action, made public the same day, targeted Wells Fargo Advisors and its affiliated brokerage firm, which agreed to pay more than $3.1 million in restitution and forfeiture payments in its trade oversight. short-term ITUs, according to the filing.

UITs, which are SEC-registered investment firms that offer inventors a single share of a fixed portfolio of securities, typically incur many fees for investors and can be financially detrimental to clients when sold. in the short term, according to Finra.

“Due to the long-term nature of UITs, their structure and costs, short-term exchanges of UITs may not be suitable,” he said in the filing.

From July 2013 to June 2018, Finra found that Wells Fargo Clearing Services and Wells Fargo Advisors had “failed to establish and maintain” an appropriate oversight system that complied with the regulator’s rules on trading early renewals of ITUs.

During this period, Wells Fargo made approximately $1.8 billion in UIT purchases which were then sold more than 100 days before reaching their due dates, the proceeds of which were then used to buy more products, according to the record.

Nearly $213 million in UIT rollover transactions were then used to purchase a series of the same UIT “often with the same or similar investment objectives and strategies as the previous series,” Finra added.

Over a five-year period, Finra said Wells Fargo generally recognized that UITs required a “buy and hold strategy” and were unsuitable for customers who could not keep the product until its expiration date. .

Despite this, Wells Fargo’s monitoring system failed to correctly identify early UIT bearings, resulting in customers paying more than $2.4 million in sales fees they wouldn’t have. had to pay otherwise.

Without admitting or denying Finra’s findings, the group agreed to pay a fine of $550,000 along with a restitution payment of $2,083,624.66 that hit Wells Fargo Clearing Services, and a fine of $100,000 and $375,137.66 against his company Wells Fargo Advisors.

A company spokesperson shared the following statement: “As part of an industry-wide review of UIT’s first bearings, Wells Fargo Advisors has enhanced the training and education of financial advisors and supervisors and improved its electronic system for monitoring UIT’s early liquidations.We are pleased that this matter has been resolved and will be making payments to affected customers, with interest.

Targeted ITU Renewals

Finra began its ITU investigation in late 2017 after finding that Morgan Stanley also failed to oversee the bearings, resulting in a $3.25 million fine and $9.8 million restitution involving thousands of customers.

It then hit Citigroup, Merrill Lynch, Stifel and Oppenheimer with similar penalties and fines.

“This multi-year effort reflects Finra’s commitment to proactively identify issues and compensate harmed investors,” said Jessica Hopper, head of the regulator’s enforcement department.

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