U.S. regulators have ordered Merrill Lynch to compensate clients whom incurred sales charges for potentially unsuitable investment rollovers.
The U.S. Financial Industry Regulatory Authority Inc. (FINRA) said that Merrill Lynch, Pierce, Fenner & Smith, Inc. must pay more than US$8.4 million in restitution to more than 3,000 clients due to possibly excessive sales charges that were paid in connection with early rollovers of unit investment trusts (UITs).
The self-regulatory organization said that Merrill Lynch executed more than US$32 billion in UIT transactions between January 2011 and December 2015, including approximately US$2.5 billion in transactions that involved UITs being sold more than 100 days before their maturity dates, with the proceeds being used to purchase other UITs.
When reps recommend that clients sell their UIT holdings before the maturity date and reinvest the proceeds into a new UIT, this activity “causes the customer to incur increased sales charges over time, raising suitability concerns,” FINRA said.
The SRO also fined the firm US$3.25 million for its failure to properly supervise those early rollover recommendations.
The firm settled the case without admitting nor denying the charges. It consented to the entry of FINRA’s findings.
“Customers often incur unnecessary costs when representatives recommend short-term sales of products that are intended as long-term investments,” said Jessica Hopper, executive vice president and head of FINRA’s enforcement division.
“FINRA member firms must implement supervisory systems sufficient to identify these potentially unsuitable transactions. Providing restitution to harmed investors remains a top priority for FINRA,” she added.