Finra ordered Merrill Lynch, Pierce, Fenner & Smith Inc. to pay more than $8.4 million in restitution to more than 3,000 customers who incurred excessive sales charges in connection with early rollovers of unit investment trusts (UITs). The firm was also hit with a $3.25 million fine for failing to reasonably supervise the early UIT rollovers.

Merrill Lynch reps allegedly sold billions of dollars in UITs before maturity and rolled over the proceeds into new UIT,  which caused customers to incur all those sales charges twice, according to Finra. The rollovers also raise concerns about the suitability of such recommendations.

UITs offer investors shares, or “units,” in a fixed portfolio of securities in a public offering with a specific maturity date, typically after 15 or 24 months. As a result, UITs are long-term investments, with sales charges based on their long-term nature, including an initial and deferred sales charge and a creation and development fee, usually totaling a brisk 4% in fees.

Merrill Lynch agreed to pay the charges in a settlement in which it did not admit to or deny the charges, but consented to the entry of Finra’s findings. A Merrill Lynch spokespeople did not immediately respond to a request for comment.

This is not the first time Merrill was hit with charges and fines for violating Finra rules with regard to UIT early rollovers and lack of supervision. The firm entered into a settlement with the regulator back in 2012 for violations that occurred between 2006 and 2009.

“Merrill Lynch executed more than $32 billion in UIT transactions between January 2011 and December 2015, including approximately $2.5 billion in which the UITs were sold more than 100 days before their maturity dates and some or all of the proceeds were used to purchase one or more UITs (early rollovers),” Finra said in a release.

“Customers often incur unnecessary costs when representatives recommend short-term sales of products that are intended as long-term investments,” Jessica Hopper, executive vice president and head of Finra's Department of Enforcement said. Broker-dealers “must implement supervisory systems sufficient to identify these potentially unsuitable transactions. Providing restitution to harmed investors remains a top priority.”

According to Finra, a typical 24-month UIT has three separate charges: An initial sales charge, which is usually 1% of the purchase price; a deferred sales charge, which is generally 2.5% of the offering price; and a creation and development fee, usually 0.5% of the offering price. The total upfront charges total a hefty 4%. While broker-dealers may waive initial sales charges on rollovers, investors are still on the hook for an additional 3% in sales charges. Rollovers eat away as much as 7% of an investor’s principal in just two years.

Finra examiners also found Merrill Lynch lacked “reasonable” supervision and did not develop a supervisory system to identify early rollovers. “While the firm’s automated reports identified when a representative recommended an early rollover of a UIT that had been held for seven months or less, the firm did not have any report that identified when a representative recommended an early UIT rollover that had been held for longer than seven months,” the regulator said.

As a result, Merrill Lynch did not discover that its reps recommended “thousands of potentially unsuitable early rollovers that, collectively, may have caused more than 3,000 customer accounts to incur more than $8.4 million in sales charges that they would not have incurred had they held the UITs until their maturity dates,” the regulator said.

Finra’s findings in the case are the result of targeted exams focused on UIT rollovers that Finra launched in September 2016, the regulator said.