FINRA Continues to Hammer Firms for Overcharges

FINRA Continues to Hammer Firms for Overcharges

The Financial Industry Regulatory Authority ordered 12 firms to pay $6.7 million in restitution and fines on Tuesday, claiming the brokerages overcharged investors purchasing unit investment trusts by failing to apply discounts.

The case follows similar fines earlier this year against firms for overcharging customers on REIT, BDC and mutual fund sales.

A UIT is an investment company that offers a fixed, unmanaged portfolio, usually of stocks and bonds, as redeemable “units” to investors that expire on a specific date. UIT sponsors usually provide discounts on the sales of these products, which are commonly referred to as "breakpoint discounts" and "rollover and exchange discounts."

But according to FINRA, a dozen firms, including First Allied, Securities America, Commonwealth, Cetera Advisors and Park Avenue Securities, failed to pass along these discounts to customers' purchases of UITs.

Click here to see a full list of the b/ds involved and the fines allotted to each firm.

“The firms sanctioned today failed to provide these discounts, resulting in customer harm in the form of higher costs for which customers have been or will be reimbursed," said Brad Bennett, FINRA's executive vice president and chief of enforcement.

The 12 firms will pay a total of $4 million in restitution and more than $2.6 million in fines. They neither admitted nor denied the charges, but agreed to the settlements. 

Tuesday’s enforcement actions follow on the heels of a similar $325,000 fine against Voya Financial in July, in which FINRA claimed the brokerage did not apply the appropriate discounts to consumers’ purchases of UITs, non-traded REITs and business development companies. Transamerica, Investacorp, J.P. Turner and National Planning Corp. were also all censured and fined earlier this summer for failing to provide investors with the appropriate discounts on sales of REITs and BDCs.

Also in July, LPL Financial, Wells Fargo Advisors and Raymond James were forced to pay a combined $30 million in restitution to clients who were wrongly sold more expensive classes of mutual funds over the past five years.

FINRA claimed the three firms failed to waive mutual fund sales charges for some clients' retirement accounts, and those held by charities.

"Firms need to ensure that their registered representatives are providing customers the sales charge discounts to which they are entitled,” Bennett said. 

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