Merrill Lynch To Pay $11.6M To Settle FINRA Case Over Unsuitable Unit Investment Trust Rollovers

Over 3,000 Customers May Have Been Charged More Than $8.4M in Excessive Sales Fees 

The Financial Industry Regulatory Authority (FINRA) announced that Merrill Lynch, Pierce, Fenner & Smith will pay approximately $8.4M in restitution and an over $3.2M fine to settle charges alleging supervisory failures involving unit investment trust (UIT) rollovers. 

The self-regulatory organization (SRO) contends that over 3,000 customers may have been excessively charged over $8.4M in sales fees related to early rollovers. 

According to FINRA, between 1/2011 and 12/2015, Merrill Lynch executed over $32B in unit investment trust transactions. The SRO said that this included more than $2.5B involving UITs that were sold over 100 days ahead of their maturity dates, with all or part of the proceeds used to buy one or more of this investment type. These newly purchased UITs often had similar or identical strategies and objectives as the unit investment trusts that had been sold. 

FINRA contends that the broker-dealer’s supervisory system was designed in a way that could not have identified these early rollovers that were at issue. While automated reports noted when brokers had recommended early rollovers involving UITs held for under seven months, this information was not generated for UIT held for longer. 

Consequently, Merrill Lynch was not able to see that its registered representatives had recommended thousands of unsuitable early rollovers that could have caused the customers affected to pay sales charges they would otherwise have avoided if only they had kept their UITs until their maturity dates. 

By settling, Merrill Lynch is not admitting to or denying FINRA’s charges. It did, however, consent to an entry of the findings. Merrill Lynch, Pierce, Fenner & Smith is a Bank of America Corp. subsidiary. 

What is a Unit Investment Trust?

A UIT is an investment company that offers units/shares in a fixed portfolio of securities during a one-time offering that ends on a specific date of maturity, usually at 15 months or 2 years. These investment types usually charge three separate fees, including an initial sales fee, deferred charges, and development and creation fees. Every time a UIT is sold ahead of its maturity date, the customer incurs sales charges.

Merrill Lynch Paid More Than $7.2M Over Excess Mutual Fund Fees 

This is not the first time Merrill Lynch has come under fire for charging customers excessive fees. A year ago, the brokerage firm paid over $7.2M in restitution to those who were charged unnecessary sales fees and excess fees involving mutual fund transactions. 

The SRO said that the broker-dealer lacked the kind of supervisory systems and procedures that could have made sure that customers who were eligible were given fee rebates and sales charges waivers. As a result, over 13,000 client accounts missed out millions of dollars in these waivers and rebates. 

Experienced Broker Negligence Lawyers

Shepherd Smith Edwards and Kantas (SSEK Law Firm at represents mutual fund investors and UIT customers who have suffered losses due to the negligent or fraudulent actions of their financial advisors and brokerage firms. Unfortunately, a broker-dealer’s failure to supervise enables all kinds of errors and misconduct, and it is the investors who end up losing money.

Call (800) 259-9010 to speak with one of our broker negligence attorneys or contact us online.

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