The Financial Industry Regulatory Authority (FINRA) has issued investment trust restitution payment orders against Merrill Lynch, Pierce, Fenner & Smith, Inc. regarding Unit Investment Trusts (UITs) rollovers.
According to FINRA, the company must pay over $8.4 million restitution to more than 3,000 customers who incurred excessive sales charges connected with the early UIT rollovers. The firm was also assessed a $3.25 million fine for failing to supervise the transactions responsibly.
FINRA defines a UIT as an investment company offering investors units in a fixed portfolio of securities during a one-time public offering ending on a specific maturity date. A registered representative recommending a customer sell their UIT position before the maturity date and rolls over the funds into a new UIT causes the customer to incur increased sales charges over time.
Per FINRA, Merrill Lynch initiated over $32 billion in UIT transactions between January 2011 and December 2015, including approximately $2.5 billion in which the UITs were sold more than 100 days before their maturity dates, and some or all of the proceeds were used to purchase one or more UITs.
“Customers often incur unnecessary costs when representatives recommend short-term sales of products that are intended as long-term investments,” Jessica Hopper, executive vice president and Head of FINRA’s Department of Enforcement, said. “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.”
Authorities indicated Merrill Lynch did not admit to or deny the charges but consented to the entry of FINRA’s findings.