FINRA ordered Merrill Lynch to pay more than $7.2 million in restitution and interest to clients who paid unnecessary sales charges and excess fees in connection with mutual fund transactions.
“We enhanced our procedures in 2017 to ensure clients always receive the appropriate fee waivers and rebates related to mutual fund purchases,” Merrill said in an email. “We fully reimbursed affected clients a year ago.”
Merrill’s “insufficient supervisory systems and procedures” failed to ensure that those customers, who collectively held more than 13,000 accounts at the firm, received available sales charge waivers and fee rebates, according to the FINRA statement.
“The firm’s supervisory failures led to customers not receiving millions of dollars in sales charge and fee waivers on mutual fund purchases,” said Jessica Hopper, executive vice president and head of FINRA’s Department of Enforcement, in a statement.
She added that Merrill had reimbursed the affected clients and cooperated with FINRA’s investigation, including engaging an outside consulting firm to identify potentially wronged customers and calculate their total remediation.
Mutual fund issuers usually offer clients a right of reinstatement, which allows investors to purchase shares of a fund after previously selling shares of that fund or another fund in the same fund family, without incurring a front-end sales charge, or to recoup all or part of a contingent deferred sales charge.
Due to insufficiently designed supervisory systems and procedures and a reliance on registered representatives to manually identify and apply appropriate waivers and rebates, Merrill failed to identify which customers were due the sales charge waivers or fee rebates and or calculate the correct amounts for reimbursement, according to FINRA.
Merrill also failed to reasonably monitor missed reinstatements because its firm alerts were captured only recently executed mutual fund transactions while fee waivers were available for some fund purchases up to a year after the initial sales.
In settling this matter, Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
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