FINRA fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million for violations linked to mutual fund sales charge waivers. The fine is part of a settlement involving overcharging practices that date back to 2006.

Merrill Lynch failed to offer the lowest-cost share classes to eligible customers like certain charities and retirement accounts.

As investors, we see this action as an effort by FINRA to protect us from unfair charges. Brad Bennett, FINRAâs Executive Vice President and Chief of Enforcement, highlighted investor protection in this case.

Merrill Lynch neither admitted nor denied the charges but consented to FINRA’s findings as part of the settlement. This fine addresses important issues related to compliance and investor rights in mutual funds transactions.

Background of the Fine and Restitution

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FINRA hit Merrill Lynch with an $8 million fine. Additionally, they must pay over $24 million in restitution to customers who were affected.

The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million.

The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch, Pierce, Fenner & Smith, Inc. $8 million. Our firm received this fine for failing to waive mutual fund sales charges for certain charities and small business retirement accounts.

This penalty is part of a larger settlement focused on compliance failures in mutual fund fee practices. FINRA found that we continued overcharging clients even after knowing about the issue since at least 2006.

Regulators said these actions hurt customers who should have received lower-cost share classes. The $8 million regulatory fine comes alongside an order to pay $24.4 million in restitution to affected customers, adding to $64.8 million already returned before this enforcement action was taken.

This case highlights how important it is for firms to act fast when problems are found, FINRA stated while announcing the fine and restitution orders.

Merrill Lynch was ordered to pay $24.4 million in restitution to affected customers, in addition to $64.8 million already repaid.

FINRA ordered Merrill Lynch to pay $24.4 million in restitution after finding that many customers had paid too much for mutual fund transactions. We see this payment as part of a larger effort to fix overcharging issues tied to fees and sales charges.

Merrill Lynch had already repaid $64.8 million before this new order, so the total compensation now goes beyond $89 million.

This restitution targets customers who lost money due to excess fees, including small business retirement plans and charities. FINRAâs directions cover both past repayments and the new settlement amount, aiming to resolve harm caused by these practices in the financial services area.

We believe addressing these problems is key for client trust when it comes to fair mutual fund transactions and fee transparency.

Affected Customers and Overcharging

Merrill Lynch’s actions impacted around 41,000 small business retirement plans and nearly 6,800 charities. They knowingly sold expensive shares to these clients while ignoring the overcharges since 2006.

Approximately 41,000 small business retirement plans and about 6,800 charities and 403(b) retirement plan accounts were affected.

About 41,000 small business retirement plan accounts faced overcharging from Merrill Lynch. Around 6,800 charities and many 403(b) retirement plan accounts also suffered from these costly mistakes.

We saw clients pay unnecessary sales charges on mutual funds, or get pushed into higher-cost share classes when lower fees were an option. Small businesses and nonprofit entities lost money to extra fees and expenses that should have been waived.

Many mutual funds on their retail platform offered waivers for these types of accounts. However, the company did not properly apply those waivers for thousands of customers between 2006 and recent years.

Both retirement plans for small businesses and charitable organizations felt this impact across a wide scale. The problem spanned both account management issues and poor financial practices regarding sales charges.

Next, we need to look at how they failed to report the issue or offer waivers as required.

Merrill Lynch continued to sell costly shares to these customers despite being aware of the overpayments since 2006.

Merrill Lynch sold costly shares to small business retirement plans and charities. This happened even though the firm knew about overpayments since 2006. The company kept pushing these higher-priced mutual fund shares for over five years.

Affected customers, around 41,000 small businesses and about 6,800 charities, continued to face financial harm due to these actions.

Merrill Lynch ignored its duty to offer lower-cost options during this time. Their inaction showed a clear disregard for client interests. Customers purchased share classes with higher fees despite knowing they were being overcharged.

Failure to Report and Offer Waivers

Merrill Lynch waited over five years to inform FINRA about the issue. They also failed to provide customers with available waivers, sticking to outdated guidelines for mutual fund sales.

The firm failed to report the issue to FINRA for over five years and did not offer available waivers to customers.

The firm neglected to report the sales charge waiver issue to FINRA for more than five years. During this time, it continued selling higher-cost share classes to customers, even though it knew about the overpayments since 2006.

Many mutual funds offered waivers for upfront sales charges, particularly to retirement accounts and charities. However, we did not apply these waivers to eligible clients. Our written supervisory procedures lacked adequate requirements for disclosing such issues and correcting them in a timely manner.

This failure harmed thousands of investors who paid unnecessary fees without realizing they had options available.

Merrill Lynch’s written supervisory procedures provided limited information regarding mutual fund sales charge waivers.

Merrill Lynch’s failure to report the issue to FINRA for over five years reveals serious gaps in their compliance. Their written supervisory procedures offered little guidance on mutual fund sales charge waivers.

We relied on financial advisors to enforce these waivers, yet they received insufficient training and oversight. Without detailed procedures, identifying and applying the correct waivers became a challenge for these advisors.

Supervisory practices at Merrill Lynch did not ensure that eligible clients obtained available waivers. This oversight contributed directly to the ongoing overcharging of retirement plans and charities.

The lack of adequate written procedures played a crucial role in the firm’s inability to prevent or address this issue effectively.

Conclusion and Settlement

Merrill Lynch agreed to FINRA’s findings without admitting or denying any wrongdoing. The settlement now closes a chapter on this significant regulatory issue.

Merrill Lynch neither admitted nor denied the charges but consented to FINRA’s findings and concluded the settlement.

We note that Merrill Lynch neither admitted nor denied FINRA’s charges. Instead, the firm consented to FINRAâs findings as part of its resolution. This settlement includes an $8 million fine and $24.4 million in additional restitution to affected clients, alongside the $64.8 million already repaid.

The allegations indicated that we were overcharged for mutual funds over several years.

This conclusion allows us to see how seriously FINRA takes investor protection regarding mutual fund sales practices. With a significant financial compensation package for clients, Merrill Lynch aims to address past errors without formally admitting any wrongdoing.

Such actions highlight ongoing regulatory scrutiny applied to major brokerage firms like ours.

References

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FINRA Fines Merrill Lynch $8 Million; Over $89 Million Repaid To Clients Overcharged For Mutual Funds – Funds Society