The Financial Industry Regulatory Authority announced today that it has ordered St. Louis-based broker-dealer Stifel, Nicolaus & Company Inc. to pay approximately $3.65 million for allowing its reps to recommend costly early rollovers of unit investment trusts (UITs).
From January 2012 through December 2016, Stifel executed approximately $10.9 billion in UIT transactions—$935.2 million of which were early rollovers. However, Finra found the firm's supervisory system and procedures were not reasonably designed to supervise the suitability of those early rollovers.
Finra ordered Stifel to pay $1.9 million in restitution plus interest to more than 1,700 customers in connection with the early rollovers of UITs—an investment company that offers investors shares or units in a fixed portfolio of securities with a specific maturity date.
The regulator also fined the firm $1.75 million for providing inaccurate information to customers related to the rollover costs they’d incur and for related supervisory violations.
"Firms must have an adequate supervisory system in place to detect potentially unsuitable UIT rollovers, and also provide customers with accurate information so they can make informed decisions about those rollover recommendations,” said Jessica Hopper, Finra’s head of enforcement, in a press release.
“We are pleased that customers will receive restitution for sales charges incurred as a result of the recommendations,” Hopper added.
Stifel spokesman Neil Shapiro said the company has no comment. In settling the matter, the company neither admitted nor denied the charges, but consented to the entry of Finra’s findings.
As a result of the deficiencies, “Stifel did not identify that its representatives recommended potentially unsuitable early rollovers that, collectively, may have caused customers to incur approximately $1.9 million in sales charges that they would not have incurred had they held the UITs until their maturity dates,” Finra found.
UITs generally terminate on specific maturity dates, often after 15 or 24 months, and are intended as long-term investments. Their sales charges are based on their long-term nature, and include an initial and deferred sales charge 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 "rolls over" those funds into a new UIT causes the customer to incur increased sales charges over time, raising suitability concerns.