FINRA Announces Final Results of Targeted Examination of Unit Investment Trust Early Rollovers
Settlements Reached with Six Member Firms Resulted in Nearly $17 Million in Restitution to 10,000 Harmed Customers
WASHINGTON—FINRA announced today that as a result of its targeted examination of Unit Investment Trust (UIT) early rollovers, FINRA has reached settlements with six member firms and obtained more than $16.8 million in restitution to approximately 10,000 investors. All of the firms, including two that agreed to settlements today,1 failed to reasonably supervise early rollovers of UITs, which caused customers to incur potentially excessive sales charges.
A UIT is a form of investment company that offers investors shares, or “units,” in a fixed portfolio of securities in a one-time public offering that terminates on a specified maturity date, often after 15 or 24 months. UITs are generally intended as long-term investments and have sales charges based on their long-term nature, including deferred sales charges, and a creation and development fee. A registered representative who recommends that a customer sell his or her UIT position before the maturity date and then “roll over” those funds into a new UIT causes the customer to incur greater sales charges than if the customer had held the UIT until maturity, raising suitability concerns.
FINRA and other regulators conduct targeted exams, known as sweeps, to gather information from a discrete set of firms about specific and usually emerging issues of concern for the industry and investors. FINRA uses sweep information to focus examinations and to investigate whether compliance outcomes exist that warrant a range of regulatory responses to emerging issues, including disciplinary actions.
FINRA initiated the sweep of early UIT rollovers after finding a member firm failed to reasonably supervise early UIT rollovers in thousands of customers’ accounts. That firm agreed to a settlement requiring it to pay $9.8 million in restitution and a $3.25 million fine.2 As a result of the sweep, FINRA identified similar supervisory failures at six additional firms, all of which agreed to settlements requiring the firms to pay a total of $16.8 million in restitution and $6.6 million in fines.3
Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, said, “This multi-year effort reflects FINRA’s commitment to proactively identifying problems and providing restitution to harmed investors. These cases should serve as a clear reminder to member firms to ensure their supervisory systems are reasonably designed to supervise sales of all the products they offer. Firms should be particularly vigilant in identifying representatives who recommend trading strategies intended to generate commissions for the representative without regard for the intended use of the product.”
In June 2021, FINRA published an Investor Insights piece to help investors better understand UITs.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.
3 The settlements reached as a result of the targeted examination include: FINRA Case No. 2017053437701; FINRA Case No. 2016050948201; FINRA Case No. 2016050948101; FINRA Case No. 2016050947801; and FINRA Case No. 2016050947701.