FINRA Sanctions Wells Fargo and four other BDs for excessive sales charges
According to The Financial Industry Regulatory Authority on December 13, the regulator has reached settlements with Wells Fargo and four other broker-dealers and obtained more than $16.8 million in restitution to approximately 10,000 investors for the firms’ failures to reasonably supervise early rollovers of unit investment trusts, or UITs. The firms agreed to pay $6.6 million in fines.
A Unit Investment Trust (UIT) is a form of investment company that offers investors shares, or “units,” in a fixed portfolio of securities in a one-time public offering that terminates on a specified maturity date, often after 15 or 24 months.
UITs are generally intended as long-term investments and have sales charges based on their long-term nature, including deferred sales charges, and a creation and development fee, according to FINRA.
FINRA noted that the early rollovers of UITs caused customers to incur potentially excessive sales charges.
The regulator censured and fined Wells Fargo Advisors Financial Network $100,000; and censured and fined Wells Fargo Clearing Services $550,000 plus $2.083 million in restitution.
FINRA notes that when a registered rep recommends that a customer sell his or her UIT position before the maturity date and then ‘roll over’ those funds into a new UIT, it causes the customer to incur greater sales charges than if the customer had held the UIT until maturity.
FINRA Launches UIT Rollover Sweep
After finding that Morgan Stanley failed to reasonably supervise early UIT rollovers in thousands of customers’ accounts, FINRA launched a UIT Rollover Sweep, according to an article in ThinkAdvisor. Morgan Stanley agreed to pay $9.8 million in restitution and a $3.25 million fine.
In addition to the two Wells Fargo divisions, FINRA identified similar supervisory failures in four other firms including Stifel Nicolaus, Oppenheimer, Merrill Lynch and Citigroup.
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