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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.