May 28, 2020
ablokhine | stock.adobe.com
The Financial Industry Regulatory Authority’s crackdown on allegedly abusive sales of Unit Investment Trusts hit Stifel Nicolaus on Thursday, who agreed to pay more than $ 3.6 million for issues related to ITU’s premature renewals.
The St. Louis-based company, without admitting or denying the findings of the industry’s self-regulator, agreed to censorship and reimburse $ 1.9 million in overcharges to more than 1,700 customers and pay a fine $ 1.75 million for allegedly providing inaccurate information on the costs of rollovers and related surveillance violations.
Finra began conducting targeted reviews of ITU sales, which include creation and development costs as well as upfront and deferred costs, in 2016, and highlighted its concerns in review priority letters sent to its staff. member companies.
Stifel’s automated alert system failed to detect potentially inappropriate rollover transactions from January 2012 to December 2016, Finra said. According to Finra, recommendations to sell one ITU before its typical two-year maturity date for another with nearly identical investment characteristics can earn advisers additional commissions of at least 2.95%.
He also said that the Stifel Financial broker has sent letters to around 600 clients who either underestimated their change costs by around 49% (specifying $ 1,000 instead of $ 1,969), or did not. just not discussed.
Stifel had been aware of early sales alert issues in its primary automated monitoring system since at least April 2012, but did not notify branch managers, Finra said. His alternative backup system was poorly designed and ceased to function in 2015, he said.
“Businesses need to have an adequate monitoring system in place to detect potentially inappropriate UIT spills, and also provide customers with accurate information so they can make informed decisions regarding these spill recommendations,” said Jessica Hopper. , Finra’s law enforcement official, in a statement.
A spokesperson for Stifel, which has around 2,100 brokers, declined to comment.
Large and small businesses have agreed to similar sanctions on ITU sales.
Finra fined independent broker Cambridge Investment Research $ 150,000 earlier this year for ignoring alerts to supervisors about short-term trading in ITUs. Oppenheimer & Co. in a December 2019 settlement agreed to pay $ 3.87 million in restitution to customers. Morgan Stanley in 2017 was fined $ 3.5 million and ordered to reimburse customers almost $ 10 million to customers.
The Securities and Exchange Commission has also focused on ITUs. Last year, Raymond James Financial agreed to a $ 15 million settlement with the regulator for, among other allegations, overcharging customers by more than $ 6 million for ITU transactions.