News & Insights

Finra Reaches Settlement With Six Member Firms Resulting In 16.8 Million In Restitution To Customers

FINRA recently announced the results of its targeted examination of Unit Investment Trust (UIT) early rollovers. The investigation resulted in settlement with six member firms, totaling $16.8 million in restitution for approximately 10,000 investors. Following its investigation into the six firms, FINRA concluded that each firm failed to reasonably supervise early rollovers of UIT’s, which caused customers to incur potentially excessive sales charges. UIT’s are generally intended as long-term investments and have sales charges based on their long-term nature. These charges include deferred sales charges, and a creation and development fee. When a registered representative recommends a customer sell his or her UIT before the maturation date and then roll those funds over into a new UIT, a customer incurs a greater sales charge than if the customer had held the UIT until maturity, thereby raising suitability concerns.

FINRA’s sweep into early UIT rollovers was initiated when it was discovered a member firm failed to reasonably supervise early UIT rollovers in thousands of customers’ accounts. While this initial firm eventually reached a settlement agreement with FINRA, the sweep uncovered similar supervisory failure at six additional firms. These six additional firms have all reached settlement agreement with FINRA, which requires the firms pay $6.6 million in fees in addition to their respective settlement amount.

We encourage our broker dealer clients to review their polices and procedures in relation to UIT’s and the supervision of rollovers and take prompt steps to ensure compliance with applicable FINRA required regulations.