Finra says Stifel, Nicolaus & Co. has agreed to pay more than $3.6 million in fines and restitution to clients over the firm’s alleged failures in its handling of early rollovers of unit investment trusts.
From January 2012 through December 2016, the company allegedly executed around $10.9 billion in UIT transactions, of which $935.2 million were early rollovers, according to a press release from the industry’s self-regulator.
Because UITs typically offer investors shares in a fixed portfolio of securities in one-time public offerings terminating after 15 or 24 months, rolling over funds into new UITs results in customers suffering from increased sales charges over time, which Finra says raises concerns over suitability.
Stifel allegedly lacked a reasonably-designed supervisory system to ensure the early rollovers were suitable and didn’t flag potentially unsuitable rollovers by its representatives, according to the press release. As a result, its customers “may have” incurred around $1.9 million in sales charges that would not have been applicable if they had held the UITs to maturity, the industry’s self-regulator says.
Furthermore, Stifel allegedly sent around 600 letters to customers with inaccurate or missing information about the costs incurred by the early rollovers, understating the cost on average by around 49%, according to the press release.
Stifel agreed to pay around $1.9 million in restitution, plus interest, to more than 1,700 customers, as well as a $1.75 million fine, without admitting or denying Finra’s finding, the industry’s self-regulator says.
Finra has been pursuing what it considers violations involving UITs in recent months. In December, the industry’s self-regulator ordered Oppenheimer & Co. to pay more than $4.6 million, including $3.8 million in restitution, for its handling of early rollovers. The same month, the industry’s self-regulator ordered Cambridge Investment Research to pay a $150,000 fine over alleged supervisory failures related to the trading and sales of UITs as well as mutual funds, and charging excessive commissions.
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