Morgan Stanley has been fined by the Financial Regulatory Authority (FINRA)
for failing to supervise the sale of short-term trades of unit investment trusts.
Morgan Stanley will have to pay $13 million, including $3.25 million in
fines and $9.78 million in restitution to more than 3,000 clients affected
by the unsupervised UIT sales conducted by Morgan Stanley brokers.
A unit investment trust or “UIT” is a portfolio of securities
offered in units by an investment company. The portfolio is meant to terminate
on a specific maturity date and incurs various fees that can total approximately
3.95 percent for a typical 2-year UIT. However, sometimes unscrupulous
brokers recommend clients sell their UITs before they mature, incurring
increased sales charges and earning the broker a fat commission.
UITs are touted as an alternative to a mutual fund, but closer examination
shows that UITs may be a poor choice for most investors. In addition to
the extra costs investors incur if they roll UITs over early, UITs are
“unmanaged investments,” which means that investors cannot
make decisions or change their strategy in response to changes in market
From January 2012 until June 2015, FINRA alleged that Morgan Stanley brokers
made short-term UIT rollovers before their maturity dates, costing their
clients millions in unnecessary fees. According to FINRA, Morgan Stanley
failed to train its brokers on specific UITs and Morgan Stanley supervisors
were not appropriately trained on review of these sales.
In response to the allegations, Morgan Stanley did not admit liability,
but agreed to the fines and restitution. The firm has also agreed to an
internal investigation as well as an outside consultant to identify clients
affected by the improper UIT sales and to develop a plan to provide restitution
to those clients.
“Due to the long-term nature of UITs, their structure, and upfront
costs, short-term trading of UITs may be improper and raises suitability
concerns,” said a FINRA representative in a statement. “Firms
must adequately supervise representatives’ sales of UITs –including
providing sufficient training –and have in place a system to detect
potentially unsuitable short-term UIT rollovers.”
Meyer Wilson attorneys recently represented a couple who lost their retirement
savings by investing in unsuitable UITs recommended by their broker. The
broker received $200,000 in commissions on the sales that never should
have happened, but the couple was able to recover investment losses with
the help of the Meyer Wilson legal team.
If you think you have been inappropriately sold UITs by your broker,
call Meyer Wilson’s attorneys to evaluate your situation and see if you have a legal claim.