The Financial Industry Regulatory Authority (“FINRA”) has pressed charges against Merrill Lynch in a case of excessive mutual fund sales charges to certain small business and charity client accounts. A payout of $32 million – including an $8 million fine and $24 million in restitution – was ordered by FINRA after it found that approximately 41,000 small business retirement accounts and 6,800 charity accounts were overcharged by Merrill Lynch advisers from 2006 to 2011. Merrill Lynch, now merged with Bank of America and “one of the country’s largest broker-dealers,” has paid out approximately $64.8 million to investors who were harmed by these overcharged fees.
The SEC alleges that Merrill Lynch failed to have adequate oversight and training of advisers regarding “waiving upfront or back-end sales charges” to specified mutual fund accounts. Moreover, Merrill Lynch was aware of the billing issue since 2006 or earlier, according to FINRA, but the firm “failed to report the violations for more than five years.”
While overcharging fees due to insufficient tracking has long become a problem (particularly during the period of 2004 to 2009), the primary deficiency here was a lack of adviser education where “the firm did not properly educate its staff about which discounts were available to customers.”
Supervision, compliance oversight, and training are all collectively needed to help ensure mutual fund sales charges are not inadvertently passed to consumers. For further information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.
GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.