Oppenheimer & Co. will pay an $800,000 fine and $3.8 million in restitution for failing to properly supervise the sale of unit investment trusts, according to the Financial Industry Regulatory Authority. More specifically, the fine was related to the early rollover of UITs.
UITs are registered investment companies with some characteristics of mutual funds and closed-end funds. Like mutual funds, UITs issue redeemable shares, or units, and they are similar to closed-end funds in that they typically issue only a specific, fixed number of shares. But unlike closed-end funds, UITs don’t actively trade their investment portfolio. Instead, they buy and hold a set of particular investments (sometimes as few as half a dozen stocks) until a set termination date, at which time the trust is dissolved and proceeds go to the shareholders.
Suitability concerns are raised when a rep recommends a client rollover these positions before the maturity date because the client would incur higher sales charges over time, FINRA said.
Of Oppenheimer’s more than $6.4 billion in UIT transactions executed between January 2011 and December 2015, $753.9 million were early rollovers, FINRA claims.
“However, FINRA found the firm’s WSPs and supervisory system—which did not involve the use of automated reports or alerts—were not reasonably designed to supervise the suitability of those early rollovers,” FINRA said in a statement.
As a result, clients may have incurred more than $3.8 million in extra fees that they would not have had to pay if they had held those positions to the maturity dates.
Oppenheimer cooperated with FINRA, putting corrective measures in place to avoid this behavior going forward, including the use of automated alerts to spot instances of early UIT rollover recommendations. The firm neither admitted nor denied the charges. A spokesman declined to comment.