The Financial Industry Regulatory Authority (FINRA) ordered 12 firms to pay restitution totaling more than $4 million and fines totaling more than $2.6 million for failing to apply available sales charge discounts to customers’ purchases of Unit Investment Trusts (UITs), and related supervisory failures.
A UIT is a type of investment company that offers redeemable units of a generally fixed portfolio of securities that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as “breakpoint discounts” and “rollover and exchange discounts.” A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase-the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units). A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.
This is not a new issue, and in March 2004, FINRA noted in Regulatory Notice (Notice to Members 04-26) that members have the same duty to understand, inform customers about, and correctly apply price breaks in the sale of UITs that they have with regard to breakpoint discounts in the sale of Class A mutual fund shares, and that they should develop and implement the same type of procedures for ensuring the proper application of such discounts in connection with the sale of UITs that they have in connection with the sale of mutual funds.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “Firms need to ensure that their registered representatives are providing customers the sales charge discounts to which they are entitled. 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.”
The firms that FINRA imposed sanctions against included the following firms:
- First Allied Securities, Inc. of San Diego, CA, was ordered to pay $689,647 in restitution and fined $325,000.
- Fifth Third Securities, Inc. of Cincinnati, OH, was ordered to pay $663,534 in restitution and fined $300,000.
- Securities America, Inc. of La Vista, NE, was ordered to pay $477,686 in restitution and fined $275,000.
- Cetera Advisors LLC of Denver, CO, was ordered to pay $452,622 in restitution and fined $250,000.
- Park Avenue Securities LLC of New York, NY, was ordered to pay $443,255 in restitution and fined $300,000.
- Commonwealth Financial Network of Waltham, MA, was ordered to pay $357,521 in restitution and fined $225,000.
- MetLife Securities, Inc. of New York, NY, was ordered to pay $349,748 in restitution and fined $300,000.
- Comerica Securities of Detroit, MI, was ordered to pay $197,757 in restitution and fined $150,000.
- Cetera Advisor Networks LLC of El Segundo, CA, was ordered to pay $151,108 in restitution and fined $150,000.
- Ameritas Investment Corp. of Lincoln, NE, was ordered to pay $128,544 in restitution and fined $150,000.
- Infinex Investments, Inc. of Meridian, CT, was ordered to pay $109,627 in restitution and fined $150,000.
- The Huntington Investment Company of Columbus, OH, was ordered to pay $60,973 in restitution and fined $75,000.
Ultimately, the firms neither admitted nor denied the charges, but consented to the entry of FINRA’s findings and the imposition of sanctions. For more information, click here.