Merrill has agreed to pay nearly $1.5 million in restitution to more than 1,300 clients for turning to its brokerage to sell products that could have been offered at no fee through its advisory arm.
Bank of America’s Merrill was faced with allegations from the Financial Industry Regulatory Authority that it had violated both the Regulation Best Interest conduct standard and the previous suitability standard over its sale of investment products through its broker-dealer business. FINRA, the brokerage industry’s self-regulator, said the same products could have been bought under a policy that would waive any fees they generated for the first year.
Instead of helping clients take advantage of that policy, FINRA alleged, Merrill advisors had investors buy the products through the brokerage arm and then move them over to the advisory side.
“These brokerage recommendations caused customers to incur unnecessary expenses — in particular, in the form of advisory fees that would have been avoided if the assets were purchased initially in advisory accounts,” according to FINRA.
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FINRA’s settlement with Merrill calls on the firm to pay $1.49 million in restitution, as well as interest, to 1,361 clients. The industry watchdog accused Merrill of violating Regulation Best Interest — which requires brokerages to look out for clients’ interests — and also the suitability conduct standard, requiring them to only recommend investments that fit investors’ needs and goals.
Both FINRA and Merrill stressed that Merrill cooperated with regulators. A Merrill spokesperson said the firm conducted an internal review to help FINRA calculate the restitution owed to clients and assisted in the agency’s investigation, as well as strengthened its supervisory systems to prevent such violations from recurring, among other remedial steps.
FINRA said that its resolution of the matter recognized Merrill for “extraordinary cooperation.”
