Finra tags Merrill Lynch with $8 million fine for mutual fund sales charges

Firm also has to pay back $89 million in restitution to charities and retirement accounts hit by excess fees

Jun 16, 2014 @ 9:33 am

By Mason Braswell

Finra slapped Bank of America Merrill Lynch with an $8 million fine and ordered the wirehouse to pay a total of $89 million in restitution for failing to waive mutual fund sales charges for certain charities and retirement accounts.

Most of the mutual funds on Merrill Lynch's retail platform waive certain fees for eligible retirement plans and charities. But the firm failed to make sure its advisers were properly applying those waivers to as many as 41,000 accounts, according to the Financial Industry Regulatory Authority Inc.

The $89 million in restitution includes nearly $65 million that the firm has already repaid to harmed investors.

"Merrill Lynch failed to offer available waivers to customers, including small business retirement accounts and charitable organizations,” Brad Bennett, Finra's chief of enforcement, said in a statement. “Finra's commitment to investor protection is highlighted by the significant restitution component of this settlement, which reinforces that investors must be able to trust that their brokerage firm will offer the lowest-cost share classes available to them. When firms fail to do so, we will take appropriate action."

From approximately 2006 to 2011, Merrill Lynch advisers placed tens of thousands of accounts into Class A mutual fund shares and other funds with the promise of waiving upfront or back-end sales charges for retirement accounts and charities. The firm failed to make sure that all fees were being waived, however, Finra said.


“Merrill Lynch's written supervisory procedures provided little information or guidance on mutual fund sales charge waivers,” Finra said in a statement. “Even after the firm learned that it was not providing sales charge waivers to eligible accounts, Merrill Lynch relied on its financial advisers to waive the charges, but failed to adequately supervise the sale of these products or properly train or notify its financial advisers about lower-cost alternatives.”

The problem was a legacy Merrill Lynch Pierce Fenner & Smith Inc. issue that had discovered after the merger, according to Bank of America Merrill Lynch spokesman William Halldin.

“Following Bank of America's acquisition of Merrill Lynch, we concluded that certain Merrill Lynch clients did not receive fee waivers for which they were eligible when purchasing some mutual funds,” he wrote in an e-mailed statement.

Although the firm learned of the issue as early as 2006, it failed to notify Finra of the discrepancy until 2011, according to Finra.

As part of the settlement, Merrill Lynch will pay an additional $21.2 million in restitution to approximately 13,000 small business retirement accounts and $3.2 million to an estimated 3,178 403(b) retirement accounts.

Merrill Lynch agreed to the settlement without admitting or denying Finra's findings.

It is not the first time the firm has been fined for overbilling. In 2012, the wirehouse paid a $2.8 million fine for allegedly overcharging nearly 95,000 customers as much as $32 million in investment advisory fees. At the time, Finra said that the firm's systems had failed to identify accounts that were entitled to pay a lower percentage of fees.

(An earlier version of this story incorrectly stated the number of accounts that did receive the proper fee waivers.)


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