Merrill Lynch reached a settlement with the Financial Industry Regulatory Authority in connection with unnecessary fees charged to customers, according to Advisor Hub.
In a letter of acceptance, waiver and consent, FINRA said that Merrill Lynch has been ordered to reimburse customers about $1.5 million due to supervisory lapses that led to avoidable fees on more than 2,000 accounts from January 2018 through June 2022.
According to FINRA, Merrill Lynch’s representatives advised customers to buy products in brokerage accounts rather than advisory accounts, which would have made the customers eligible for fee waivers. The firm did not establish a supervisory system to ensure that the recommendations were suitable or in the customers’ best interests.
“Merrill Lynch offers customers a 12-month waiver of otherwise-applicable advisory fees on certain new-issue products, if, and only if, the products are purchased initially in an advisory account,” FINRA said. “Notwithstanding this benefit, from January 2018 to June 2022, in certain instances [the firm’s] registered representatives recommended that customers purchase such products in a brokerage account and then promptly recommended the transfer of those same products to an advisory account.”
As a result, it was determined that customers incurred advisory fees that would have been avoided if they had initially purchased the assets in advisory accounts.
Merrill Lynch was found to be in violation of FINRA Rule 2010, requiring high standards of commercial honor and just and equitable principles of trade, FINRA Rule 3110, requiring a supervisory system designed to achieve compliance with applicable securities laws and regulations, and the Securities and Exchange Commission’s Regulation Best Interest in which broker-dealers are required to recommend only products that are in their customers’ best interests.
Merrill Lynch did not admit or deny the findings but agreed to a censure and to pay restitution of $1,486,380 plus interest to the 1,361 unique customers identified by the firm.
AdvisorHub’s report stated that a Merrill Lynch spokesperson declined to comment on the case or whether any of its roughly 11,000 brokers faced internal discipline.
In its settlement letter, FINRA said it has recognized Merrill Lynch’s “extraordinary cooperation” for, among other things, conducting an internal review to identify affected customers and calculate remediation, implementing remedial measures in its systems to voluntarily enhance its supervisory system and address deficiencies identified during the review, and agreeing to pay restitution to affected customers.
The attorneys at Hyman Cotter PC include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Hyman Cotter PC at 312-291-4600 or through our online contact form.
