New York Securities Lawyer Blog
On June 4, 2020, the Financial Industry Regulatory Authority (“FINRA”) announced that it ordered Merrill Lynch, Pierce, Fenner & Smith Inc. to pay its customers more than $7.2 million in restitution and interest resulting from unnecessary sales charges and excess fees incurred by more than 13,000 Merrill Lynch accounts in connection with mutual fund transactions from 2011 to 2017. FINRA found that Merrill Lynch’s ’s supervisory systems and procedures failed to ensure that certain customers received sales charge waivers and fee rebates that were available to them.
Typically, mutual fund issuers will offer their customers a right of reinstatement, allowing the investors to purchase shares of a mutual fund after previously selling shares of that fund or another fund in the same fund family, without incurring a front-end sales charge, or allowing the investors to recoup some to all of contingent deferred sales charges.
Rather than ensuring that proper supervisory systems and procedures were in place to identify waivers and fee rebates that were available through rights of reinstatement, Merrill Lynch instead relied on its brokers and investment advisors to manually recognize and apply waivers and rebates for investors and for the financial advisors to manually identify which customers are eligible for reinstatement rights. According to FINRA, the manual system was “unreasonably designed… given the number of customers involved, the complexity of determining which customers were due sales charge waivers or fee rebates, and difficulty in calculating the amount of the waiver and rebate.”
It is the responsibility of brokerage firms to have in place supervisory systems that are reasonably designed to ensure its customers receive all available sales charge waivers and fee rebates in connection with mutual fund investments. “Ensuring that harmed customers receive restitution is [FINRA’s] highest priority and we will take [Merrill Lynch’s] determination to proactively provide restitution into account when assessing sanctions,” said Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement. Customers of brokerage firms often pay excessive or undisclosed fees for investment products. If a customer believes that his or her financial advisor or brokerage firm did not properly disclose fees associated with their investments or charged excessive fees for such investments, the customer may have claims against the brokerage firm or financial advisor.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud. If you think you were improperly charged fees on your investments, or if you think you may be a victim of investment fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.