Key Investment Services, LLC, Next Financial Group, Inc., Stephens Inc., Bankers & Investors Co., and J.J.B. Hilliard, W.L. Lyons LLC were all recently censured and fined by Financial Industry Regulatory Authority (FINRA) for failing to apply sales charge discounts to certain customers’ eligible purchases of unit investment trusts (“UITs”) in violation of FINRA Rule 2010; as well as failing to establish, maintain and enforce a supervisory system and written supervisory procedures reasonably designed to ensure that customers received sales charge discounts on all eligible UIT purchases.
According to the AWCs, UIT sponsors offer investors several ways to reduce sales charges on UIT purchases. The AWC stated that the most common methods of reducing the fee are through breakpoints, which allow investors to reduce sales fees by increasing the size of their UIT investments, and/or discounts on rollovers and exchanges. The AWC further stated that either method of reducing fees can be considered to result in sales charge discounts.
The AWCs indicated that FINRA Notice to Members 04-26 reminded broker-dealers that they should be developing and implementing procedures which ensure customers receive the sales charge discounts when entitled. The Notice stated that it was firm’s responsibility to ensure that the employees were cognizant and correctly applied price breaks to customers who were purchasing the securities.
According to the AWCs, the aforementioned firms all failed in one way or another to establish, maintain and enforce supervisory systems and written supervisory procedures reasonably designed to ensure customers received sales charge discounts on eligible UIT purchases. In nearly all cases, the firms relied on registered representatives to ensure customers received the appropriate UIT sales charge discounts, even though the firms did not effectively inform and train representatives and their supervisors to identify and apply the sales charge discounts. Firms were found to have violated NASD Conduct Rules 3010(a) and (b) and FINRA Rule 2010 in this regard.
Key Investment Services, LLC, headquartered in Brooklyn Ohio, consented to a censure and a $100,000.00 fine in connection with violating FINRA Rule 2010, and NASD Rules 3010(a) and (b) associated with 496 UIT purchases taking place between May 1, 2009 – April 30, 2014; and was ordered by FINRA to pay $100,247.02 in restitution to affected customers. Letter of Acceptance, Waiver and Consent, No. 2014041678601 (Jan. 27, 2016).
Next Financial Group, Inc., headquartered in Houston, Texas, consented to a censure and a $125,000.00 fine in connection with violating FINRA Rule 2010, and NASD Rules 3010(a) and (b) associated with 696 UIT purchases taking place between May 1, 2009 – April 30, 2014; and was ordered by FINRA to pay $216,150.04 in restitution to affected customers. Letter of Acceptance, Waiver and Consent, No. 2014041679001 (Jan. 27, 2016).
Stephens, Inc., headquartered in Little Rock, Arkansas, consented to a censure and a $235,000.00 fine in connection with violating FINRA Rule 2010, and NASD Rules 3010(a) and (b) associated with 826 UIT purchases taking place between June 1, 2010 – May 31, 2015; and was ordered by FINRA to pay $458,747.07 in restitution to affected customers. Letter of Acceptance, Waiver and Consent, No. 2014042543901 (Feb 3, 2016).
Bankers & Investors Co., located in Kansas and Missouri, consented to a censure and a $25,000.00 fine in connection with violating FINRA Rule 2010, and NASD Rules 3010(a) and (b) associated with 168 UIT purchases taking place between March 2010 and March 2014. Letter of Acceptance, Waiver and Consent, No. 2014039169401 (Feb. 5, 2016).
J.J.B. Hilliard, W.L. Lyons LLC, headquartered in Louisville, Kentucky, consented to a censure and a $175,000.00 fine in connection with violating FINRA Rule 2010, and NASD Rules 3010(a) and (b) associated with UIT purchases taking place between May 1, 2009 – April 30, 2014; and was ordered by FINRA to pay $328,491.00 in restitution to affected customers. Letter of Acceptance, Waiver and Consent, No. 2014042544401 (Feb. 10, 2016).
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