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FINRA Caps Off UIT Rollover Sweep With $2M Fine on Wells Fargo Unit

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What You Need to Know

  • On Monday, two Wells Fargo units agreed to pay nearly $2.7 million in fines and restitution over early UIT rollovers.
  • The rollovers caused customers to incur potentially excessive sales charges.
  • Stifel, Oppenheimer, Merrill Lynch and Citigroup were also busted for supervisory failures in the multi-year sweep.

The Financial Industry Regulatory Authority said Monday that it has reached settlements with six broker-dealers and obtained more than $16.8 million in restitution to approximately 10,000 investors for the firms’ failures to reasonably supervise early rollovers of unit investment trusts, or UITs. The firms agreed to pay $6.6 million in fines.

The settlements in the sweep, which began in 2019, include two reached Monday with Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services.

Wells Fargo Advisors Financial Network was censured and assessed a $100,000 fine; Wells Fargo Clearing Services was censured and ordered to pay a $550,000 fine and $2.083 million in restitution.

The early rollovers of UITs caused customers to incur potentially excessive sales charges, FINRA reported.

A UIT is a form of investment company that offers investors shares, or “units,” in a fixed portfolio of securities in a one-time public offering that terminates on a specified maturity date, often after 15 or 24 months.

“UITs are generally intended as long-term investments and have sales charges based on their long-term nature, including deferred sales charges, and a creation and development fee,” FINRA explained.

A registered rep “who recommends that a customer sell his or her UIT position before the maturity date and then ‘roll over’ those funds into a new UIT causes the customer to incur greater sales charges than if the customer had held the UIT until maturity, raising suitability concerns,” FINRA said.

UIT Rollover Sweep

FINRA initiated the sweep of early UIT rollovers after finding that Morgan Stanley failed to reasonably supervise early UIT rollovers in thousands of customers’ accounts.

Morgan Stanley agreed to a settlement requiring it to pay $9.8 million in restitution and a $3.25 million fine.

As a result of the sweep, FINRA identified similar supervisory failures at six firms — Stifel, Oppenheimer, Merrill Lynch, Citigroup and the two Wells Fargo divisions — all of which agreed to settlements.

“This multi-year effort reflects FINRA’s commitment to proactively identifying problems and providing restitution to harmed investors,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement in a statement.

“These cases should serve as a clear reminder to member firms to ensure their supervisory systems are reasonably designed to supervise sales of all the products they offer. Firms should be particularly vigilant in identifying representatives who recommend trading strategies intended to generate commissions for the representative without regard for the intended use of the product.”


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