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FINRA Fines Merrill Lynch for Unsuitable Sales of UITs

The Financial Industry Regulatory Authority (FINRA) recently fined Merrill Lynch $500,000 and ordered the firm to pay $2 million in restitution for unsuitable sales of unit investment trust (UIT) interests to investors.  Specifically, Merrill Lynch failed to provide sales charge discounts to customers on eligible purchases of UITs.  FINRA also found that Merrill Lynch failed to have an adequate supervisory system in place to ensure customers received the appropriate UIT discounts. 

According to the FINRA announcement:

Merrill Lynch's procedures lacked substantive guidelines, instructions, policies or steps for brokers or their supervisors to follow to determine if a customer's UIT purchase qualified for and received a sales charge discount. As a result of its defective procedures, between October 2006 and June 2008, the firm failed to appropriately apply discounts on rollover and breakpoint purchases resulting in customers being overcharged on their UIT purchases.

Merrill Lynch also approved for distribution, and for use in client presentations, inaccurate and misleading UIT sales literature. The presentation discussed sales charge discounts, but led clients to believe that they were only entitled to a discount if they used UIT proceeds to purchase a new UIT offered by the same sponsor.

 

The full text of FINRA's announcement of sanctions against Merrill Lynch for its UIT sales is available at:  http://www.finra.org/Newsroom/NewsReleases/2010/P121789