Firms failed to apply available sales charge discounts to customers’ purchases of unit investment trusts
Cetera Advisors, Cetera Advisor Networks and Commonwealth Financial Network were among 12 firms ordered Tuesday by the Financial Industry Regulatory Authority to pay a total of $6.6 million restitution and fines for failing to apply available sales charge discounts to customers’ purchases of unit investment trusts and related supervisory failures.
The 12 firms were ordered to pay more than $4 million in restitution to customers and fines totaling more than $2.6 million.
FINRA imposed sanctions against the following firms:
- First Allied Securities Inc. of San Diego was ordered to pay $689,647 in restitution and fined $325,000.
- Fifth Third Securities Inc. of Cincinnati was ordered to pay $663,534 in restitution and fined $300,000.
- Securities America Inc. of La Vista, Nebraska, was ordered to pay $477,686 in restitution and fined $275,000.
- Cetera Advisors LLC of Denver was ordered to pay $452,622 in restitution and fined $250,000.
- Park Avenue Securities LLC of New York was ordered to pay $443,255 in restitution and fined $300,000.
- Commonwealth Financial Network of Waltham, Massachusetts, was ordered to pay $357,521 in restitution and fined $225,000.
- MetLife Securities Inc. of New York was ordered to pay $349,748 in restitution and fined $300,000.
- Comerica Securities of Detroit was ordered to pay $197,757 in restitution and fined $150,000.
- Cetera Advisor Networks LLC of El Segundo, California, was ordered to pay $151,108 in restitution and fined $150,000.
- Ameritas Investment Corp. of Lincoln, Nebraska, was ordered to pay $128,544 in restitution and fined $150,000.
- Infinex Investments Inc. of Meridian, Connecticut, was ordered to pay $109,627 in restitution and fined $150,000.
- The Huntington Investment Co. of Columbus, Ohio, was ordered to pay $60,973 in restitution and fined $75,000.
In concluding the settlements, the firms neither admitted nor denied the charges but consented to the entry of FINRA’s findings.
“Firms need to ensure that their registered representatives are providing customers the sales charge discounts to which they are entitled,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement. “The firms sanctioned today failed to provide these discounts, resulting in customer harm in the form of higher costs for which customers have been or will be reimbursed.”
As FINRA explains, UITs offer redeemable units of a generally fixed portfolio of securities that terminate on a specific date. UIT sponsors generally offer sales charge discounts to investors, known as “breakpoint discounts” and “rollover and exchange discounts.” A breakpoint discount is a reduced sales charge based on the dollar amount of the purchase — the higher the amount the greater the discount. Breakpoints generally function as a sliding reduction in the sales charge percentage available for purchases, usually beginning at $25,000 or $50,000 (or the corresponding number of units). A rollover or exchange discount is a reduced sales charge that is offered to investors who use the termination or redemption proceeds from one UIT to purchase another UIT.
Commonwealth said in a statement that “upon discovering this issue, Commonwealth proactively revised the applicable supervisory systems and procedures for UIT rollover and exchange purchases. We have also reimbursed all affected customers for missing discounts, plus interest.”
From May 1, 2009, to April 30, 2014, Cetera Advisor Networks failed to apply sales charge discounts to 740 eligible UIT purchases resulting in customers paying more than $151,100 in excessive sales charges.