Finra cracks down on firms for missing discounts on UIT sales

Three B-Ds paying a total of $1.2 million in fines and restitution

Feb 5, 2016 @ 12:42 pm

By Bruce Kelly

Finra is continuing its crackdown on brokerage firms for failing to give clients discounts for large purchases of investment products, ordering three firms to pay $1.2 million in fines and restitution.

The three firms, Next Financial Group Inc., Key Investment Services and Stephens Inc., were charged with failing to apply sales charge discounts to certain customers' eligible purchases of unit investment trusts, or UITs, and related supervisory failures, according to three Financial Industry Regulatory Authority Inc. settlements.

A UIT is a type of fund that is a mix between an actively managed fund and a fixed portfolio of income-producing securities that is purchased and held to maturity. UITs typically issue redeemable securities, or "units," like a mutual fund, which means that the UIT will buy back an investor's units, at the investor's request, at their approximate net asset value, according to the Securities and Exchange Commission.

A UIT typically will make a one-time public offering of only a specific, fixed number of units, like closed-end funds.

Next Financial was fined $125,000 and ordered to pay restitution of $216,000; Key Investment Services was fined $100,000 and ordered to pay restitution of $100,000; and Stephens was fined $235,000 and ordered to pay restitution of $459,000. According to the Finra settlements, Next Financial and Key Investment Services failed to give the discounts from May 2009 to April 2014. Stephens failed to give discounts from June 2010 to May 2015.

“It was missed and we corrected the situation,” said Barry Knight, president of Next Financial.

A spokeswoman for Stephens, Chenoa Taitt, said the company declined to comment. A spokeswoman for Key Investment Services, Laura Mimura, did not return a call seeking comment.

Finra has been watching whether firms are properly giving their clients discounts, commonly known in the securities industry as breakpoint discounts.

In October, Finra announced that it had ordered a dozen firms to pay restitution and fines totaling $6.7 million for failing to apply sales charge discounts to clients' purchases of UITs and related supervisory failures.

Also in October, Finra fined six independent broker-dealers for failing to give discounts on large REIT sales.


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