Finra Sanctions Securities Firms for Withholding UIT Discounts

Wall Street's watchdog firm said Tuesday that it settled charges against a dozen brokerage firms, alleging the firms withheld fee discounts that customers were entitled to in connection to the purchase of unit investment trusts.

The Financial Industry Regulatory Authority said it ordered the firms to pay restitution of more than $4 million and $2.6 million in fines linked to the sale of the securities, also known as UITs, which are fixed portfolios of investments as opposed to actively managed funds.

Among the firms sanctioned were the securities divisions of Fifth Third Bancorp, MetLife Inc., Comerica Inc. and Huntington Bancshares Inc.

As part of the settlement, the firms didn't admit or deny fault, Finra said in a news release announcing the settlement.

"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 chief of enforcement.

"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."

These fixed portfolios usually have low minimums and liquidate at a mandatory date.

Because UITs aren't actively managed, their annual operating expenses are low, but they also carry upfront sales charges, deferred sales charges, creation and development fees, and organization cost fees.

When one UIT liquidates and an investor rolls assets into another UIT, a new, though generally reduced, sales charge applies. Besides these "rollover and exchange," discounts, brokers also offer "breakpoint" discounts that increase with the size of the investment.

In March 2004, Finra issued a regulatory notice reminding brokers that they should implement policies to ensure customers receive appropriate sales charge discounts for UITs.

Write to Ezequiel Minaya at ezequiel.minaya@wsj.com

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(END) Dow Jones Newswires

October 20, 2015 11:55 ET (15:55 GMT)

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