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April 03, 2023 at 04:41 PM
The Securities and Exchange Commission Monday took action against Merrill Lynch, Pierce, Fenner & Smith Inc. for charging advisory clients more than $4 million in undisclosed foreign exchange fees for transfers to or from their accounts.
According to the SEC’s order, between May 2016 and July 2020, Merrill Lynch offered programs to advisory clients in which the clients paid Merrill a fee in exchange for a range of investment advisory services, including foreign currency exchanges.
“In the program’s client agreements and brochures, Merrill Lynch disclosed that it charged a markup or markdown on foreign currency exchanges, but it did not disclose an additional fee it referred to as a production credit, which, in more than 80% of the transactions, was equal to or greater than the disclosed markup or markdown,” the order states.
Merrill Lynch paid a percentage of these production credits to its financial advisors and referred to this charge as a commission in internal documents, according to the SEC.
The SEC’s order also finds that Merrill Lynch failed to adopt and implement policies and procedures reasonably designed to prevent its disclosures from being misleading about the fees it charged on foreign currency exchanges.
Without admitting or denying the SEC’s findings, Merrill Lynch agreed to a cease-and-desist order and a censure; in addition, it will pay disgorgement of roughly $4.1 million, prejudgment interest of $760,000,and a civil penalty of $4.8 million.
