Finra sanctions Morgan Stanley over UIT sales

Firm will pay $13 million in fines and restitution for failure to supervise

Sep 25, 2017 @ 12:34 pm

By InvestmentNews

Finra has fined Morgan Stanley $3.25 million and required the firm to pay approximately $9.78 million in restitution to more than 3,000 affected customers for failing to supervise its brokers' short-term trades of unit investment trusts.

The Financial Industry Regulatory Authority Inc. found that from January 2012 through June 2015, hundreds of Morgan Stanley brokers executed short-term UIT rollovers, including UITs rolled over more than 100 days before maturity, in thousands of customer accounts.

Finra said the firm failed to adequately supervise representatives' sales of UITs because it provided insufficient guidance to supervisors regarding how they should review UIT transactions to detect unsuitable short-term trading, failed to implement an adequate system to detect short-term UIT rollovers and failed to provide for supervisory review of rollovers prior to execution within the firm's order entry system. Morgan Stanley also failed to conduct training specific to UITs, Finra said.

UITs impose a variety of charges, including a deferred sales charge and a creation and development fee, that can total approximately 3.95% for a typical 24-month UIT, Finra said.

"A registered representative who repeatedly 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 sale charges over time, raising suitability concerns," Finra said in a release.

In its settlement with Finra, Morgan Stanley neither admitted or denied the charges, but consented to the regulator's findings.

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