Finra Sanctions Securities Firms for Withholding UIT Discounts
October 20 2015 - 12:10PM
Dow Jones News
Wall Street's watchdog firm said Tuesday that it settled charges
against a dozen brokerage firms, alleging the firms withheld fee
discounts that customers were entitled to in connection to the
purchase of unit investment trusts.
The Financial Industry Regulatory Authority said it ordered the
firms to pay restitution of more than $4 million and $2.6 million
in fines linked to the sale of the securities, also known as UITs,
which are fixed portfolios of investments as opposed to actively
managed funds.
Among the firms sanctioned were the securities divisions of
Fifth Third Bancorp, MetLife Inc., Comerica Inc. and Huntington
Bancshares Inc.
As part of the settlement, the firms didn't admit or deny fault,
Finra said in a news release announcing the settlement.
"Firms need to ensure that their registered representatives are
providing customers the sales charge discounts to which they are
entitled," said Brad Bennett, Finra's chief of enforcement.
"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."
These fixed portfolios usually have low minimums and liquidate
at a mandatory date.
Because UITs aren't actively managed, their annual operating
expenses are low, but they also carry upfront sales charges,
deferred sales charges, creation and development fees, and
organization cost fees.
When one UIT liquidates and an investor rolls assets into
another UIT, a new, though generally reduced, sales charge applies.
Besides these "rollover and exchange," discounts, brokers also
offer "breakpoint" discounts that increase with the size of the
investment.
In March 2004, Finra issued a regulatory notice reminding
brokers that they should implement policies to ensure customers
receive appropriate sales charge discounts for UITs.
Write to Ezequiel Minaya at ezequiel.minaya@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 20, 2015 11:55 ET (15:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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