Wells Fargo, Merrill Lynch, Oppenheimer, and Stifel Nicolaus Pay Hefty Fines Due to Brokers Excessively Trading UITs

Chicago-based Stoltmann Law Offices is representing investors who’ve suffered losses from dealing with broker-advisors who’ve executed unsuitable short-term trading strategies. When a broker takes your money in and out of investment products intended to be held long term, like Unit Investment Trusts or mutual funds, the brokerage firm can be liable for any losses sustained.

FINRA, the U.S. securities industry regulator, recently concluded a sweep of Unit Investment Trust (UIT) sales that resulted in a combined $16.8 million in restitution payments and $6.6 million in fines against six firms, according to Advisorhub.com. UITs are mutual-fund-like vehicles sold by brokers that carry high up-front fees or “loads”.

The regulator reached a settlement with two Wells Fargo Advisors broker-dealers “that agreed to pay $3.1 million in fines and restitution over failure to supervise improper short-term trading of UITs. The sanctions, which were levied against the firm’s core Wells Fargo Clearing Services broker-dealer and Wells’ independent Financial Network unit, included almost $2.5 million in restitution and $650,000 in fines.” The FINRA sweep previously “also hit Merrill Lynch, which paid the lion’s share of the penalties with $11.65 million in fines and restitution, as well as Stifel Nicolaus & Co., Cambridge Investment Research, and Oppenheimer & Co.”

“FINRA began its sweep in 2016 after finding that brokers at Morgan Stanley Wealth Management had made thousands of improper rollovers,” Advisorhub reported. “It ordered the wirehouse to pay nearly $10 million in restitution and a $3.25 million fine in that case.”

Brokers have clear financial incentives to overtrade and churn accounts since they earn a commission from every transaction. As a result, churning is one of the most frequent industry abuses and the subject of countless arbitration claims. In the case of UITs, broker profits are substantial.

Brokers will often “roll over” client funds from other investments into the more lucrative UITs and other investments. UITs carry sales charges of 3.95% and are designed to be held 15 to 24 months, according to the FINRA settlement. Early rollovers into a new UIT could incur additional sales charges of 2.95% and repeated rollovers could generate as much as 12.8% in commissions over a two-year period, FINRA said.

Has your financial advisor sold you UITs or other investments like mutual funds, and traded in and out of those into new UITs or funds?  This sort of trading scheme is predatory and designed for one reason – to put your money into the broker’s pocket.  If your financial advisor trades your money in and out of investments intended to be held long term, like UITs, bonds, mutual funds, or annuities, you may have claims to pursue through FINRA Arbitration.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!

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