FINRA sign outside its building in New York. Outside FINRA building in New York. (Photo: Shutterstock)

The Financial Industry Regulatory Authority says Stifel Nicolaus has agreed to pay $3.6 million in restitution and fines tied to its early rollovers of unit investment trusts.

The parent firm of Stifel Financial will return some $1.9 million to more than 1,700 clients, and the rest will be paid to FINRA as a fine for giving clients “inaccurate information … related to rollover costs incurred, and for related supervisory violations,” the regulator said early Thursday.

Stifel executed close to $11 billion in UIT transactions from 2012 to 2016   $935 million of which were early rollovers that “the firm’s supervisory system and procedures were not reasonably designed to supervise” for suitability, FINRA explained, adding that clients incurred $1.9 million in charges from the sales.

In addition, Stifel sent 600 letters to clients with inaccurate or missing information about costs associated with early UIT rollovers or “switches.” The letters understated the costs by about 50%.

The Stifel news comes five months after Oppenheimer agreed to pay $4.7 million for early UIT rollovers from 2011 to 2015.

“Firms must have an adequate supervisory system in place to detect potentially unsuitable UIT rollovers, and also provide customers with accurate information so they can make informed decisions about those rollover recommendations,” said Jessica Hopper, head of FINRA’s Department of Enforcement, in a statement. “We are pleased that customers will receive restitution for sales charges incurred as a result of the recommendations.”

Stifel did not admit to or deny the charges but consented to the entry of FINRA’s findings.

UIT Issues 

FINRA’s launched a targeted examination of UITs in 2016. Its 2018 Regulatory and Examination Priorities Letter advised firms that it would review their supervisory controls related to UITs.

UITs are investment companies that offer investors shares, or “units,” in fixed portfolios of securities via a one-time public offering that ends on a specific maturity date, such as after 15 or 24 months. 

Seen as long-term investments, UITs tend to have initial and deferred sales charges, as well as creation and development fees.

Advisors who recommend clients sell UIT positions before the maturity date and then roll over these funds into new UITs cause clients “to incur increased sale charges over time, raising suitability concerns,” according to FINRA.